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Rockhopper Exploration’s new Sea Lion well nears target

Rockhopper Exploration (LON:RKH) may report findings from its latest oil exploration well in the Falkland as early as next week, according to research by Evolution Securities.

David Farrell, oil and gas analyst at Evolution, reckons the new Sea Lion well could potentially reach its two target horizons at some stage over the weekend.

Rockhopper spudded the 14/10-3 exploration well 8 kilometres north west of the Sea Lion discovery on 13 January. This new well is testing a previously undrilled northern lobe of the Sea Lion fan system, outside the Sea Lion Discovery Area about 8 kilometres away from the original discovery well.

“Looking back at previous drilling rates in the North Falkland Basin suggests that Rockhopper may potentially be reaching the two target horizons of its current 14/10-3 well at some stage this weekend,” Farrell said. 

“This means an update from the company may come as early as next week.”

The original Sea Lion well put the north Falkland basin on the map as a credible frontier oil play when it struck oil early in May.

Back then Rockhopper set the discovery’s recoverable resource estimate at 242 million barrels (mmbbls) of oil, and it also noted the discovery’s “significant upside potential". In September flow testing on the Sea Lion well returned a rate of around 2,000 barrels of oil per day (boepd) for approximately 18 hours. The test peaked at 2,304 bopd.

Since then however Desire Petroleum’s (LON:DES) string of unsuccessful exploration wells have dented what was becoming an increasingly compelling oil boom in the south Atlantic.

Now with investor attention firmly fixed on the only confirmed oil discovery in the new frontier, a successful result from the new Sea Lion well could give the Falklands oil story a breath of fresh air.

Indeed Farrell reckons a positive drilling result could add between 200 and 300 pence to Rockhopper’s share price - which currently stands at around 360 pence per share. He highlights that the success of a second well could take the Sea Lion resource to 500 million barrels.

“Investing prior to well results is obviously very risky however we value the Sea Lion discovery, at 200 million barrels, at 351 pence suggesting there is some decent downside protection,” Farrell said.

The analyst adds: “If successful, in addition to the direct benefit to Rockhopper, a 500 million barrel field development becomes a much more attractive proposition to an international oil company (NYSE:IOC) or national oil company (NYSE:NOC) and should therefore lessen the commercialisation discount applied to all companies in the Falklands.”

It is clear that the weeks and months ahead will be crucial for the AIM-listed firms exploring for oil in the north basin - Rockhopper, Desire Petroleum and Argos Resources (LON:ARG).

Alongside Rockhopper’s drilling results, these companies are also likely to get a boost from a widespread seismic exploration programme across all three companies' acreage in the basin. 

The results of the two separate seismic programmes, using different vessels, are expected early in spring. Work is already underway on the first programme, which partners Rockhopper and Desire. Argos and Rockhopper are partnered for the other seismic programme.