Why RockRose Energy may have further to climb
RockRose Energy has had a great year this year, soaring upon re-admission thanks to its lucrative acquisition of a business called Marathon Oil. With the company boasting huge production numbers, exploration potential, and a strong balance sheet, we believe this bull-run could have further to go.
To recap, Rockrose Energy is an independent oil and gas production and infrastructure company focused on onshore and offshore production opportunities and infrastructure projects. The business owns a wide portfolio of assets based around Europe, some of which include:
-A 30.8pc stake in the North Sea-based Blake field, which delivered 2,900boepd of net production in 2018 and holds 10.5MMboe of 2P reserves;
-A 14.6pc stake in the A/B blocks offshore Netherlands, which delivered 2,700boepd net in 2018 and contain 5.1MMboe of 2P reserves. An appraisal drilling programme is also taking place this year for 2C volumes;
-A 11.7pc holding in blocks K4/K5, also found offshore Netherlands, which delivered 1,200boepd net production in 2018 and hold 3.2MMboe of 2P reserves; and
-A 30.4pc position in the Arran field offshore Aberdeen, which is due onstream in Q1 2021 at a gross cost of $300m. Once this occure, net production of 6,000boepd is expected.
2019 has been a key year of development for RockRose. This began back in February, when its shares were suspended on the news that it had signed a share purchase agreement to acquire a business called Marathon Oil for $140m.
Marathon holds 37-40pc operated interests in fields in the Greater Brae Area, which boasts more than 5,000boepd net production, expected to last for more than a decade. It also holds a 28pc interest in the BP operated Foinaven Field unit and a 47pc position in Forineven East. Collectively, the Foinaven area offers net production of more than 3,000boepd.
The purchase completed in July, and Rockrose’s share price soared from 815p to 1,800p upon readmission, before hitting an all-time high of 2,030p in the weeks that followed. This is because of the immediate, positive impact the Marathon acquisition had on the company. Indeed, it doubled Rockfire’s pro forma production to c.22,000boed as well as raising audited 2P reserves by 82pc from 34.5MMboe to 62.9MMboe.
Obviously, RockRose’s huge rise has been and gone – at least for the time being – now the Marathon acquisition and associated suspension have completed. But there remains a great deal of scope for further growth.
RockRose is about as ‘proper’ as it gets for an oil and gas company. Indeed, it boasts strong production, upside potential from its producing assets, exploration opportunities (more can be found on these on the firm’s website), and is debt-free.
Post-acquisition, it also boasts a very strong cash balance. This came in at c.$370m (£303.46m) at the end of the first half after adjusting for cash flows, falling to $279m (£228.82m) if you subtract restricted cash flows. Regardless of which of these figures you use, they compare favourably to the firm’s current £218m market cap.
Of course, RockRose has numerous financial obligations over coming years (the Blake partners will invest over £200m in the field over the five years to end-2023 and it will cost c.£30m to decommission the Brae Bravo platform in the five years to end-2023). However, the business will also be generating cashflow throughout this period, and production is also expected to increase over the next two years considerably.
For those who fancy a change from taking a punt on the usual ‘all-or-nothing’ style exploration play, RockRose looks pretty strong from where I am sitting.
Andrew Austin caught up with friend of the TMS platform Malcolm Graham-Wood
The author was remunerated but does not hold shares in the company