Rockhopper up on Cairn takeover rumours -UPDATE

16th Jan 2012 11:01

Rockhopper Exploration, the Falkland Islands focused oil and gas company, has risen this morning on rumours of a possible takeover by Cairn Energy.The Sunday Times reported yesterday that cash rich Cairn, which made billions by developing fields in India, is interested in taking over Rockhopper's key asset, the Sea Lion field, 80 miles north of the Falklands.The move would be a big adventure for Cairn, which has so far failed in its current campaign off the coast of Greenland.The problems for investors in Rockhopper are two fold. Firstly, there needs to be huge investment in the Falkland Islands to build the infrastructure necessary to support a major oil industry, the estimated cost is £2bn.The second problem is a slight issue with the neighbours. Argentina still claims sovereignty over the Falklands and is supported by Brazil. Both of those countries will refuse any logistical support to production.Argentina has also said it will prevent any companies engaged in the Falklands from working in its recently discovered shale fields.The one problem a purchaser of Rockhopper does not face, however, is a lack of oil. Current estimates are that the company is sitting on 500 million barrels of black gold, which would fetch around $55bn at today's prices.Shares in Rockhopper have gained 10% this morning. Over the last 12 months the stock has dropped 19%, although since the Sea Lion discovery in 2010 the shares have gained nearly 650%. Its current market cap is £858m.Despite all of the above, the Financial Times (FT) wrote today that last year Rockhopper did indeed hold informal talks with Cairn Energy about entering the Sea Lion project; but that the parties are no longer in talks, although they may renew their contacts in the coming weeks. Perhaps worth taking into account, in recent times some companies in the sector have opted to put themselves on the auction-block, given the difficulties they sometimes encounter when trying to obtain the financing necessary to carry out their growth plans. One of the sources cited by the FT added that Indian and Korean oil companies are also expected to show an interest.BS