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Rockhopper Exploration - Market heavily discounting Sea Lion

Based on our analysis, we believe the current share price implies a c 20% chance of success for Sea Lion Phase 1 at $70/bbl or c 39% at a $60/bbl long term oil price (excluding any value for further phases of Sea Lion). Given recent progress with the award of letters of intent (LOIs) for key project components and with more than 60 people working on the development, we are more positive on the chance of success. In our view, the key outstanding risks are in project funding and politics. H119 has the potential to be eventful for Rockhopper with more definitive guidance on the availability of export credit funding and a hearing on the Ombrina Mare arbitration, scheduled for February. Our valuation increases to 78.9p/share (+7.2%) largely due to sterling weakness. This valuation assumes a 55% chance of Sea Lion Phase 1 progressing and 20% for subsequent phases at a $70/bbl long-term oil price. Given the subjectivity of key inputs, we provide sensitivities to these key value drivers in this note.