Brokers rush to reappraise Rockhopper and Desire

13th Dec 2011 09:42

Rockhopper Exploration, the company which found oil off the north coast of the Falkland Islands, has seen its shares soar 9.3% this morning following the announcement of a successful well dig.Results from the "14/15-4" well suggest that the amount of oil and gas under the cold South Atlantic seas is greater than current estimates.In its last resource update Rockhopper said it believed its 100% owned "Sea Lion Main Complex" site had 1.297bn barrels of oil in place. This was in addition to its nearby Casper field which was estimated at 90m barrels. Analysts have speculated this may equate to up to 400m barrels of "recoverable" oil.Rockhopper believes its discoveries extend into areas owned by AIM-listed oil producer Desire Petroleum. 14/15-4 was therefore drilled in Desire's waters with Rockhopper taking a 60% stake in exchange for paying for the drilling.14/15-4 hit 4 reservoirs, 1 gas (Beverley) and 2 oil (Casper, Sea Lion Main Complex) and one oil and gas (Casper South)Rockhopper says "all four targets are hydrocarbon bearing and no water wet sands were observed". Commenting on the result of the dig, Rockhopper's Chief Executive Sam Moody said: "This fantastic result from our most aggressive well of the campaign will further increase our minimum estimates of oil in place for Sea Lion and Casper, in addition to proving two new discoveries in Beverley and Casper South, which is our third oil discovery in the Basin."Meanwhile, according to analyst Keith Morris from Evolution Securities, "there is no doubt that the success of this well should drive the net asset value higher"."In addition the upper reserves case in the SLMC should start to convince investors (and perhaps more importantly industry farm in partners) that they have a large economic field development," he said.Brendan Long, an analyst at Merchant Securities, is pounding away at the calculator to determine a new valuation for Rockhopper."Our 428p price target is based on 325m barrels of producible oil net to Rockhopper. We have also ascribed an arbitrary 60% discount to our fundamental valuation of 1,070p to reflect market apprehensions concerning the Falkland Islands," Long said. "Our fundamental valuation and our target price are due for significant upward revisions as a result of 14/15-4," Long confirmed.Westhouse Securities, a broker focused on the resources sector, is also impressed with the find, but highlights the effect it is likely to have on Desire."This is a very positive result, particularly for Desire, which has farmed out 60% of its acreage in return for the cost of a well. We would note that unless very large volumes of gas are found in these discoveries and/or the surrounding areas, gas is probably uncommercial in this area, although it could be re-injected into selected reservoirs to provide reservoir drive," said Westhouse.The broker has a "buy" recommendation for Rockhopper and a "hold" rating for Desire.BS