RE: My take31 May 2021 12:34
Good morning Godders99
You wrote; " If this is such a great idea why are at 9 pence?"
Here is a very basic, abbreviated, description of the issues assuming any reader has no knowledge at all of the story to date.
RKH has a large interest in SEALION which is a very large conventional fully appraised oil field , ready to develop and to the North of the Falkland Islands. Its in a moderate depth water; in fact the technical challenges and the weather data are very similar to the North Sea.That is the good news.
The bad news is ; it was farmed out to Premier Oil (PMO)who, for a number of reasons, were put under debt pressure and never recovered their independent strength to actually commence development.
RKH financial position is weak and it is reliant, in the near future, on receiving a significant arbitration award from a dispute with the Italian government who blocked development of an offshore oil field.
A decision is expected on the case this July . RKH are claiming 275 million Euros in compensation for costs incurred and lost profits.
The HOPE is that RKH have a winning case . The size of any possible award is very much in question; some think any award will be halved because RKH knowingly bought into the blighted asset.
This case is critical to RKH's finances. Without an award RKH will be close to running out of funds by YE 2022. Without a cash injection its clear to me that RKH would have to equity fund raise in autumn 2022.
Its important to note that RKH has a tiny income from a couple of declining assets which have large decommissioning liabilities which will become an issue. They are toxic assets.RKH has nothing to sell of value other than an interest in SEALION.
SEALION is not an asset that has a ready market . Its fate depends on the decisions made by Harbour Energy HBR who took over the struggling PMO.
Harbour are hard nosed and heavily indebted with a focus on the North Sea where they hope to exploit PMO's enormous historic tax losses. The Harbour management have been lukewarm and non committal regarding SEALION stating SEALION has to compete with other opportunities they see. They are to review SL.
That is tricky for SL as its a buyers market and with a breakeven on the proposed $1.8 billion USD development declared to be $42 (RKH final results); that is not cheap.
Its possible that harbour could abandon SL as too big and expensive. It is , imo, exceedingly unlikely that another cash rich player would replace HBR.
My hope is that the Falklands Island Government (FIG) will review their taxation of oil production to encourage SL development. One area of taxation that might be reduced is their $9 per barrel royalty.PMO tried to get the FIG to move on the royalty in 2017 but they refused.
There are a number of of scenarios here with the worst case, imo, being complete wipeout of RKH shareholders funds.
The most positive case is Rockhopper receiving a very substantial cash injection AND Harbour commit
Sign In
Follow the stocks
