Broker snap: Rockhopper fall overdone

13th Oct 2010 12:43

The old saying of 'what goes up, must come down' appears to apply to Falklands oil explorer Rockhopper Exploration but Westhouse Securities thinks Wednesday morning's 14% fall was an over reaction.As a result of a delay in a new competent person's report due to limited available data the company said that resource estimates from June would most likely be reined back by about 30%.That sent the shares diving below 400p, though that is still ten times the level they were at in early May. Westhouse has cut its target price to 495p, based on a more conservative resource estimate of 170m barrels for Rockhopper's Sea Lion prospect."We believe that there remains significant upside associated with Sea Lion, which will be unlocked following additional work, not least of which will include additional 3D seismic and drilling in 2011. Other prospective areas within Rockhopper's acreage are also likely to be highlighted by the proposed 3D seismic programme," the broker believes. "Mitigating near-term gains, however, will be the requirement to raise additional funding associated with the proposed drilling contract extension. The amount needed will depend on whether other operators in the basin are included, as was the case with the current Ocean Guardian programme, and the mix of exploration and appraisal wells that will be pursued," Westhouse added.The broker is sticking with its "buy" recommendation for the shares.