Outlook
The outlook for the group is very good, with $271.0 million of resources available at 31 May 2011 to complete the drilling and testing of well 14/10-5 and the three further committed wells that will follow it, as well as any additional wells to which the group commits.
With the recent completion of the 3D seismic acquisition, at a total expected cost of $23.3 million ($14.2 million of which was incurred during the year), the only capital expenditure for the rest of the year is expected to relate to the ongoing drilling campaign, which is expected to have a cash requirement in the region of $0.8 million per day.
The time taken to complete the committed wells will depend upon the requirements of each well, but, on a dry hole basis, a pure exploration well is expected to take about four weeks, an appraisal well about five weeks and a tested appraisal well about nine weeks.
The rig contract requires that there are three committed wells in the pipeline and so if Rockhopper wants to drill an additional well beyond the three already committed then it would have to make a commitment to do so by the time that it spuds well 14/10-6.
Activity for the rest of the financial year will focus around the ongoing drilling campaign and researching and considering the financial, regulatory and engineering requirements of a field development.
*****
Following a disappointing result at 14/10/3, and disappointing responses to positive results at 14/10/4 and 14/10/5, I’ve been growing increasingly concerned as to what could trip us up next.
Thankfully we’ve broken the resistance offered by the 20/50/100sma, but the 200ma still stands. But beyond the technical, what about the fundamental analysis? We’ve been banging the fully funded drum for a long time now, and we’re burning cash at a hell of a rate now that we’ve got the rig all to ourselves. The disclosure that we need to have 3 (effectively 4 atm!) drilling slots booked in advance has got me thinking. What if DES/ARG can’t raise the cash to drill themselves? How many drills can we do back to back? How long will our cash last?
The results statement above states that we had $271m/£169m to drill with as at 31/05/11. At a daily cash burn rate of $0.8m/£0.5m, our cash reserves should today sit at ~$241m/£150m.
30/04/12 is 335 days away from 31/05/11. 335*0.8=$268m. $271m-$268m=$3m. So in theory our cash could last until the end of April 2012 if we had the rig every day. Obviously RKH will want to raise funds before the cash runs out altogether, so let’s pick a number like $50m spare before they raise more funds.
29/02/12 is 274 days away from 31/05/11. 274*0.8=$219.2m. $271m-$219.2m=$51.8m. So we can estimate that RKH will raise funds by the end of February 2012 (ie Q1 2012 to tie in with the expected CPR).
Now we’ve already used 37 of those 274 days, so we’ve got 237 days left to run. How many wells can we drill in the 237 days to 29/02/12?
By the guidance offered by PDC in the results statement, an exploration well should take ~28 days, an appraisal well should take ~35 days, and a tested appraisal should be complete in ~63 days. So if we were to drill 4 more appraisals (@bearded types: is this realistic/enough?), and test 2 of them, plus an extra exploration well (Johnson again?), that should take ((1*28)+(2*35)+(2*63))= 224 days.
Then we get a CPR + impartial statement of commerciality, then fund raising/farm-in/takeover bid…
Probably a clear case of tl;dr, but I feel better for putting a little more meat on the bone than “fully funded for 2011”
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I never saw a trade at 205
Tech is too cheap though all risk is being underrated generally - 1/3 of market cap is free cash so not too worried
