Rockhopper disappoints with further delay to first oil from Falklands

So another delay in Rockhopper Exploration’s development of the Sea Lion discovery in the North Falklands with news that it has completed the concept selection process for the field with its partner Premier Oil.

Premier have chosen the Tension Leg Platform (TLP) option as the most suitable technical and commercial solution, over the FPSO route (Floating Production, Storage and Offtake) as preferable in terms of economics and complexity.

Unfortunately for shareholders the FID (Final Investment Decision) is now likely to be taken in the first half of 2015, a delay of around 6 months,  and Rockhopper expects first oil 3½ – 4 years after project sanction, making it 2018-2019. They are now in the FEED stage, Front End Engineering and Development.

The company also confirmed that drilling would be likely to start end of this year or early in 2015 once a rig had been sourced and a contract signed in the first half of 2014 with other Falklands opertators taking part.The Zebedee, Jayne East, Elaine/Isobel, and Chatham prospects have been matured to drillable status and a rig tender process is underway.

A bit of patience needed right now for Rockhopper shareholders but hopefully the 2015 drilling campaign will add to Sea Lion’s considerable size and it speaks to the fact that there may be richer pickings in oil and gas shares over the next six months e.g. Xcite Energy and Bowleven.

The Argentinian government is threatening to take legal action against any company who participate in the Falklands oil activity to add that extra bit of anxiety in terms of the FID for the field. Let’s hope Premier Oil continue to have some balls and all indications are positive. They have announced that Neil Hawkings has been appointed with immediate effect to the role of Director, Falkland Islands, in order to oversee the execution of the Sea Lion development project.

Premier shares have had a beat of a beating this morning, down 6% to 289p on operational issues. They have forecast average 2014 production of 58-63 thousand barrels of oil equivalent per day (kboepd) despite fields capable of producing in excess of 75 kboepd. They have reduced expectations after taking into account production efficiency and planned maintenance periods. Last year estimated average production was 58.2 kboepd, compared with 57.7 kboepd in 2012.

During December the firm’s production rate averaged 69 kboepd, with a peak weekly average rate above 75 kboepd after its Huntington field offshore UK and Chim Sao field in Vietnam came back online.

Huntington production had been impacted by BP’s issues in the field in the final quarter of 2013. Chim Sai gas exports were interrupted following damage to a flange connecting its export pipeline to the Nam Con Son Pipeline.

They clearly need the 350 million plus of Sea Lion’s potential production, shame it’s so far off! Let’s hope that some of the institutional pressure to abandon the project doesn’t get any airtime with the Premier board!

Contrarian Investor UK

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