http://www.falklands-oil.com/

http://www.rockhopperexploration.co.uk

http://www.argosresources.com/




Rockhopper was established in 2004 with a strategy to invest in and undertake an offshore oil exploration programme in the North Falkland Basin. It was floated on AIM in August 2005. Rockhopper was the first company to make a commercial oil discovery in the Falklands. Today Rockhopper is the largest acreage holder in the North Falkland Basin, with interests in the Greater Mediterranean region.

Cynic , is it going to rain in London today ?

well now you know ..... had it been butter, then you might have had more cause to worry, though i have cut my fingernails

and no, no rain today i think, but pretty breezy, which is nothing to do with the broad beans i have just picked and cooked off

The Friday Cannacord note with certain parts highlighted.

Exciting points. The size of Sea Lion (45 sqkm) suggests that the final size might be near to the P10 case (eg not 242M barrels recoverable but around 550M barrels given P10 is 669M). This would put Sea Lion into "World Class" discovery size with an implied value in the ground of 1630 pence per share flow tested/appraised against a present potential of 720p flow tested for 242M barrels.

Flow test will likely happen before Ernest drilling if the equipment is on site before FOGL finish, else Ernest will be first before Sea Lion flow test.

They will likely finish flow testing Sea Lion and drilling Ernest AND have enough money to appraise Sea Lion. This is due to the fact a lot of money is tied up in demands of the FI government as they have Sea Lion suspended pending flow test. Once flow testing is done and all data gathered they can officially (Plug and Abandon) P&A the Sea Lion well, which means they can get back all their money held up in financial guarantees for having the well in suspended status. With all data gathered and some time to production they can easily P&A the well with a new wells being drilled when the field goes into production which is some years away (of course for the bears and derampers they should note this does not take away the value of the oil, so please do not jump all over the P&A news when it happens, its all part of the plan).

So the drilling plans could go something like this :

RKH flow test Sea Lion. AWT they P&A Seal Lion.
RKH drill Ernest. RKH flow test Ernest if discovery made. After EWT they P&A.
DES drill Rachel. DES flow test Rachel if discovery made. After EWT they P&A.
RKH drill Sea Lion appraisal well.

Of course those plans will be very fluid so they can jump around a bit.

Very exciting that potentially they can appraise Sea Lion with no further dilution. If they achieve that then there could be a serious case for listing on the FTSE250 along with a fund raising from the large institutions at over 1000p a share.




SOUTH ATLANTIC STAR

Sea Lion upgraded

At the end of last week and following the successful suspension of well 14/10-2, Rockhopper Exploration announced the results of an independent preliminary volumetric assessment of its Sea Lion discovery. This was conducted by RPS Energy, the same firm that produced a competent persons report for Rockhopper in 2009, and the following table summarises the changes to its estimates:

Table 1: Sea Lion recoverable resources estimates (mmbbl)
P90 P50 P10 Mean
Pre drill (prospective resources) 58 170 472 220
Current (contingent resources) 57 242 669 291
Change -2% +42% +42% +32%
Source: Rockhopper Exploration, RPS Energy

In the same press release, Rockhopper reiterated that the reservoir appears to be of good quality, with average porosity of 19% and good permeability (previously it had reported that this ranges between 200-500 Milidarcy in the main pay zone). Combined with the fact that the oil recovered to surface has been confirmed as medium gravity crude of between 26-29 API, this suggests there every chance that the well will flow at satisfactory rates when it is tested later this year.

Meanwhile, we were also encouraged by the groups observation that: The entire Sea Lion fan has an areal extent of over 45 square kilometres and there are strong seismic indications of thicker reservoir packages elsewhere in the fan. .It is noteworthy that this figure is somewhat closer to RPS Energys P10 case (56 square kilometers) than its P50 case (27 square kilometers).


Funding for increased workload

At least initially, success with the drill bit tends to cost money and, especially offshore, quite a lot of it. Hence, it was not a big surprise when, on Tuesday of this week, Rockhopper launched a placing of 17.3 million new shares at 280p each to raise 48 million (gross). As a result, we estimate the company now has approximately US$130 million at its disposal. Some US$30 million of this will be utilised to test the Sea Lion discovery well and the equipment necessary to undertake such an operation is currently en route to the Falkland Islands from the UK. Assuming it arrives before BHP completes the Toroa exploration well and returns the Ocean Guardian drilling rig to Rockhopper, we expect the test to be conducted before the company drills an exploration well on the 156 mmbbl Ernest prospect.

Other uses of the new funds include US$17 million to respond to a demand from the Falkland Islands Government that the group demonstrate additional financial capacity in relation to the suspension of the Sea Lion discovery well and the drilling of the Ernest exploration well. Of course, this requirement will fall away as those operations are completed and over US$20 million from the placing has yet to be allocated for a specific purpose (it is to be used for operational contingency, technical and engineering studies, and working capital). Hence, we think it is possible that Rockhopper will get to the end of its current work programme with much if not all of the money it would need to drill a Sea Lion appraisal well.

Impact

RPSs 242mmbl best estimate of contingent resources at Sea Lion represents a substantial (42%) increase on its pre-drill figure. Using this number and after taking account of the new shares issued this week, we now estimate the field has the potential to be worth 441p/share versus 343p/share previously. Meanwhile, our estimate of the value of the cash on Rockhoppers balance sheet plus the expected monetary value (EMV) of the other prospects it will explore as part of the current drilling campaign is now 122p/share versus 90p/share previously. These figures have been calculated using a flat real oil price of US$70 per barrel allied to a discount rate of 15% per annum.

Action/Valuation

Following the events of the last week, our estimate the value of Sea Lion plus the EMV of the two Desire-operated exploration wells in which Rockhopper will participate over the next few months and the cash on its balance sheet is equivalent to 563p/share assuming an oil price of US$70 per barrel flat real and a discount rate of 15% per annum. We are setting this as our new price target (previously 433p/share) and we are upgrading our recommendation from Speculative Buy to BUY.

Upcoming Events/Catalysts

The Ocean Guardian is currently drilling the Toroa prospect on behalf of BHP and Falkland Oil & Gas. Once this well has been completed, the rig will return to Rockhopper to test Sea Lion and drill the 156 mmbbl Ernest prospect in which the group also has a 100% stake. We expect this to occupy it for the remainder of the (northern hemisphere) summer.

HSBC Global Custody Nominees (UK) Ltd have bought more...good news

decided to take a sizeable profit on this one ahead of the budget.

can never be wrong .... i still hold quite a sizeable lump, but have profitably traded in and out along the way in the last few months ..... technically, RKH should not be affected by the budget, but if the markets take the pronouncements amiss, then selling will be indiscriminate

cynic don't forget CGT!

ah yes, though of course one has to make a profit to pay it - lol!

Presumably the CGT allowance change could be applied retrospectively, back to the start of the tax year?

harry or perhaps the increased rate may not apply until next tax year.

You wish, h!!!! I think HMG want to start reducing the national debt this side of Christmas!

retroactive law is bad law and fortunately very rarely implemented

harry don't you get it, taking a profit now is not affected by an increase in CGT next week, unless it doesn't take effect until next tax year.

if it is back-dated to 5th April this year it does!

As a late buyer of these, I am wondering if the rig is going back to Sea Lion within the month?
Halifax, you are right about profits.... assuming you make one.. :o)) .

I don't think it will be introduced a la N.C's wishes, it may well be watered down, but wouldn't increasing the CGT actually be a retrograde step, would it result in less activity and therefore less income for HMRC from the 1/2% buying fee. What about introducing a tax on CFD's and spread betting. I'm not suggesting this but it could be an option.
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Yes, I get it, h. My point is, if you are selling now in anticipation of an increase in CGT, if the CGT %age is back dated to 6th April 2010, it won't make any difference. Also, your point, if CGT isn't increased until next tax year, HMG won't get their hands on the money until late 2011 or early 2012 & that is not going to happen, imo. Try & keep up! ;o)

harry it still has to be paid sooner or later it is just a question of whether you pay less now or more later... keep up!

profits on CFDs are already taxable though not on s/b .... damned if i see the difference, for they are both gambling, but that is apparently the reasoning

I thought CFD's were free of tax, that's how much I know, I have never used them, should have been sure of my facts before posting.
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