Rockhopper announced its preliminary results for the period ended March 31, 2010.
- £50m before expenses raised in November 2009 to fund the 2010 exploration program
- Assignment of two slots for the Ocean Guardian rig to drill the Sea Lion and Ernest prospects in the North Falkland Basin during 2010
- Spudding of the Liz well (operated by Desire Petroleum) that was later declared as a gas discovery
- $64.5 million of resources available for exploration at 31 March 2010
Post-period highlights include:
- Sea Lion well spudded April 16, 2010 and declared an oil discovery on May 6, 2010
- Best estimate of Sea Lion by independent consultancy, RPS Energy, raised from 170 million barrels recoverable to 242 million barrels recoverable
- £48.5m before expenses raised in June 2010 to fund an initial flow test on Sea Lion and provide working capital for other related technical work
- Ernest well spudded 23 July 2010 and declared a dry hole on 17 August 2010
- $119.7 million of resources available for exploration at 30 June 2010
Dr. Pierre Jungels, Rockhopper Exploration's Executive Chairman, said, "We are fully funded to complete the well on the Ernest prospect, a flow test on the Sea Lion prospect, which we believe will help move the discovery forward towards being declared as commercial, and pay our 15% contribution to two further wells on PL003 & PL004, where Desire is the operator. The group has been
transformed by the discovery on the Sea Lion prospect and is now working through the steps required to ensure that shareholders get the best possible value from it."
FOR THE YEAR ENDED 31 MARCH 2010
The discovery on the Sea Lion prospect has transformed the value proposition represented by the group. A pure exploration play, such as Rockhopper when it began, creates value through a number of discrete steps, each with its own set of risks and rewards, as it goes through the process of proving reserves then moving forward to production.
In chronological order, we see the key value points for the group as being:
- The winning of the exploration licenses,
- The making of the first discovery on those licenses,
- The testing of the discovery well to give an indication of its commercial potential,
- Confirmation of the size of the discovery for scoping development plans as well as the full exploration of the acreage,
- Completion of the field development plan, and
- First oil and subsequent production.
The first value point, the winning of the exploration licenses, was achieved in the earliest days of the group. In 2004 we were awarded licenses PL023 & PL024, in the south of the basin, and in 2005 we farmed into Desire licenses PL003 and PL004 and were awarded PL032 & PL033, the former Shell acreage in the north of the basin that contains the Sea Lion discovery.
The second value point, the making of the first discovery, took until 6 May 2010 when we announced the results of well 14/10-2 on the Sea Lion prospect. This discovery was the result of a great deal of rigorous technical work undertaken over the years since 2004 which enabled us to be drill ready by the start of the year under review and in a position to act on the opportunity to be part of the 2010 drilling program initiated by Desire, our neighboring license holder and partner in PL003 & PL004.
Prior to drilling, RPS had provided an independent review of the possible size of the Sea Lion prospect, attributing it with a best estimate of 170 million barrels recoverable. At 170 million barrels recoverable, RPS had calculated a net present value, at $80 per barrel and applying a 10% discount rate, for the prospect of $2.5 billion. Following the drilling, the best estimate was increased by RPS to 242 million barrels recoverable, indicating that there could be significant upside still to be realized.
We spudded well 26/6-1 on the Ernest prospect on July 23, 2010 and declared it to be a dry hole on August 17, 2010. The well was drilled approximately 120 kilometers from the Sea Lion discovery in a previously undrilled part of the basin to test a different play type from that of Sea Lion. The well encountered good quality sands with high porosity and permeability and we intend to undertake detailed studies of all the data gathered.
We are fully funded to complete the well on the Ernest prospect, the initial flow test on the Sea Lion prospect, which we believe will help move the discovery forward towards being declared as commercial, and pay our 15% contribution to two further wells on PL003 & PL004, where Desire is the operator.
With the current program funded and underway, we have therefore turned our planning focus to the fourth value point, confirmation of the size of the Sea Lion Field. This will require appraisal of the discovery on Sea Lion and to deliver this we see three distinct work streams, being technical, corporate and financial.
In technical terms, we need to establish the number and location of appraisal wells required on the Sea Lion prospect. We also need to revisit our prospect inventory in light of the new data from the recent wells to establish where we would like to drill further exploration wells and whether, and if so where, additional 3D seismic should be shot. In corporate terms, I am delighted to report that at the executive level Dave Bodecott, our exploration director, and Peter Dixon-Clarke, our finance director, are both now full time employees. At the non-executive level we will look for two additional non-executives thereby bringing the total number of directors to eight and creating the balance between executive and non-executive that the Combined Code requires for good governance.
In financial terms, once we have an agreed work program for the next phase, we will be in a position to cost it and consider how best to finance it. As part of this planning, we are undertaking a review of our advisers and considering whether we should remain on the Alternative Investment Market (AIM) or move up to the Main Market of the London Stock Exchange, a decision we will take when it is right for the group.
The fifth value point, the completion of a field development plan, cannot be concluded until the discovery is appraised and confirmed as to its size, but the research and planning as to how best to deliver this has already been started.
In conclusion, the group has been transformed by the discovery on the Sea Lion prospect and is now working through the steps required to ensure that you, as shareholders, get the best possible value from it. The discovery has been the result of over six years of hard work and I would like to thank my board, the consultants we have engaged, the Falkland Islands Government and you, as shareholders, for investing both time and money in this success.