Rockrose Energy: first of seven infill wells completed

Rockrose Energy (RRE.L, Market Cap £116m, 888p, 5.7% of JIC Portfolio and 5.1% of JIC Top 10)
It announces that the first of its planned two infill wells at West Brae has been completed and “is delivering to expectations”. The drilling rig has moved on to the second development which was spudded last night. The two wells are designed to increase net production to Rockrose by 2,5000 barrels of oil per day.

The two infills are part of a programme of seven wells planned for this year. The target is to increase daily production by 8,500 this year and next. The aim is to turn 2c resources into 2P reserves and extend the life of its fields.

Importantly, Rockrose confirms that it had unrestricted cash on 28th February of £232.6m, or £18 per share. 2019 Results will be issued on 23rd March.

Commenting, Andrew Austin, Rockrose, Executive Chairman, said:
“The drilling of the first of two RockRose-operated infill wells at West Brae has been completed as planned. The rig has now moved to the second well, which remains on target to deliver the first production in Q2. These wells form part of a wider programme aimed at creating significant value for shareholders, including increased production, the conversion of resources to reserves and extending field life.”

Conclusion: It’s been a painful few days for Rockrose shareholders but for the company, its business as usual! Clearly, things have changed with yesterday’s plunge in the oil price. Although it has some hedging in place which will mitigate the impact of much of the lower oil price in the short term, prolonged oil price weakness will hurt cash flow. Having said that, I’m a firm believer that the current low price will presage a higher price in the future than might otherwise have been expected. At the margin, it will increase demand but more importantly, capital expenditure on new developments will dry up, as will investment in expensive US shale. Rockrose, with “unrestricted” cash of £18 per share and no debt, is in a good position. Clearly, my rating on it of Low Risk/High Reward was wrong. I’m happy with the High Reward but the Risk rating should probably have been Medium, given the long-term sensitivity to the oil price. I had it as low risk due to its financial strength, (it’s not heavily laden with debt like Premier of Tullow). Changing the Risk rating now is probably too late; the horse has bolted. I’m left with a holding in a company with £232m of unrestricted cash (the share price is at 50% discount) and in a strong position to take advantage of situations that are thrown up by the lower oil price. I look forward to the results on 23rd March. For 2019 it paid a dividend of 85p. If it decides to do the same for 2020, that will cost it just £11m and leave the dividend yield at 9.5%. It is likely to be volatile over the next few months, but it is in a strong position and once the oil price stabilises/ recovers the share price should rebound. I will be looking to add. Happy Holder! 

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