Rockhopper Exploration (LON:RKH) has revealed the results of detailed analysis of the oil it has discovered in its Sea Lion exploration well in the North Falkland Basin. Samples analysed under reservoir conditions in a specialist laboratory have been confirmed as medium grade crude and were described by the company as “positive”.
The results of the analysis confirmed the API of the oil as 26.4 - 29.2 degrees with a low viscosity of 6.5 - 8.5 centipoises at reservoir pressure. The Gas Oil Ratio came in at 261 - 272 standard cubic feet per stock tank barrel with a typical wax content of 18.4% - 20.8% wt. The formation value factor (FVF) was 1.16 and the oil contains low sulphur of around 0.2% weight
Sam Moody, Rockhopper’s managing director, said: “These positive results, when combined with our knowledge of reservoir quality from logging data, give us further comfort that a flow test of the Sea Lion well will confirm a mobile crude oil. The wax content is typical for a lacustrine sourced crude oil and significantly lower than many other producing oilfields worldwide. Furthermore the viscosity, gas oil ratio, FVF and sulphur are all better than we anticipated.”
Last month, Rockhopper raised £48.5m by selling 9.9% of its share capital in a placing with investors priced at 280p. The company said the fundraising would be used to progress its current drilling programme in the North Falkland Basin, including flow testing of its Sea Lion exploration well and drilling an exploration well on its Ernest prospect. The value of shares in Rockhopper has soared since the end of May when it became the first of a group of companies operating in the Falklands to strike oil. Analysis of the company’s Sea Lion discovery so far appears to show that Rockhopper has opened up a new play fairway in the region and that the well penetrated a regional seal between 2,250 metres and 2,374 metres subsea. Every sand in the well beneath that regional seal is charged with oil leading independent consultants RPS Energy to upgrade its best estimate of recoverable contingent resources from 170m barrels to 242m barrels. You can read further analysis and discussion of Rockhopper here.
In the coming months the Ocean Guardian rig will be used for drilling programmes around the Falklands by a number of oil and gas exploration companies,…
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Some broker comment from FTAlphaville this morning .
Good news from RKH with a further update on the quality of the Sea Lion crude. This morning’s press release contains further encouraging news from Sea Lion given that the viscosity, gas oil ratio, FVF and sulphur results exceeded management projections. This positive news combined with the recent confirmation of a good quality reservoir leads us to believe there every chance that the well will flow at satisfactory rates when it is tested later this year.
Although the wax content may at first glance appear to be high, Rockhopper has indicated that the sample level is not only typical for a lacustrine sourced crude oil but also significantly lower than many other producing oilfields worldwide. Indeed, we would point out that Cairn Energy’s world class Mangala oil field in India has a wax content of 35%.
Allied to an oil price of US$70 per barrel flat real and a 15% discount rate, we estimate the Sea Lion field is worth 441p/share. In addition, our assessment of the expected monetary value (EMV) of the prospects that the company either will drill or hopes to participate in the drilling of over the next few months plus its remaining cash is equivalent to 122p/share. Hence, we reiterate our target price of 563p/share and our BUY recommendation.
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 the Sea Lion discovery well and drill the 156 mmbbl Ernest prospect (Rockhopper 100%). We expect this to occupy the drilling unit for the remainder of the (northern hemisphere) summer. The shares are still trading well below our NAV of 563p, and we believe that today's news further derisks the company. We remain big BUYers
