Rockrose Energy; year-end update

Rockrose Energy (RRE.L, Market Cap £242m, 1850p, 9.2% of JIC Portfolio and 8.9% of JIC Top 10)

Year-end trading update

Conclusion: These look pretty much in-line with expectations with year-end unrestricted net cash of £241m. It confirms the final dividend of 25p to come but no mention yet of its planned payment for 2020. I guess that depends on whether further corporate action is forthcoming. Andrew Austin is clear that it is looking to do further value-enhancing deals; “we continue to look at opportunities to deploy our balance sheet strength to make acquisitions that meet our criteria.” In the meantime, the shares look very cheap to me with unrestricted cash matching its current market capitalisation. Put simply, all the future net cash flow from production is in for nothing. This undervaluation may be due to funds not holding oil due to environmental/ethical reasons but whatever one’s thoughts on this, oil and gas will be part of the global energy mix for many years to come.  I have it as Low Risk (due to the strong balance sheet) and High Return due to the very cheap valuation. Some argue that a commodity stock should never be Low Risk, as one cannot predict the oil price. I have some sympathy with that but think the balance sheet strength means even if the oil price halved, Rockrose would be fine. I’ll stick with Low Risk/High Return for now, (a target weight for me of 7.5%). Happy Holder!

Main points:
2019 production of 19,200 boepd (barrels of oil equivalent per day). Excluding planned shutdowns production would have been20,500 boepd.

Year-end net cash was $370.7m, of which $54.9m is restricted (put aside for future decommissioning costs). “Free” cash was $315.8m or £241m.

Rockrose will participate in seven wells over the next year aimed at “converting 2c resources to 2p reserves as well as delivering significant production growth and extending field life”. Details are in the news release.

Average production for 2020 is forecast to grow 9.0% to 21,000 boepd.
Capex in 2020 is forecast at $200m

Decommissioning expenditure in 2019 was $10m and is expected to be $25m in 2020.

Commenting, Andrew Austin, Rockrose, Executive Chairman, said:

“RockRose is well placed to continue to offer substantial returns to shareholders. We delivered a strong increase in production in 2019, which resulted in significant cash generation. In turn, this enabled us to implement a regular dividend policy to return cash to investors while continuing to invest in projects designed to drive additional future returns. We have a busy schedule in 2020, which will see organic growth in our production, and we continue to look at opportunities to deploy our balance sheet strength to make acquisitions that meet our criteria. We look forward to reporting on further progress as the year unfolds”.

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