The Rockhopper (LSE: RKH) share price has fallen by around 30% over the past month. So the stock has pinged on my radar as a potential buy. After all, with the share price near 10p, it’s up by around 78% since this time a year ago.
Potential in the Falklands
It seems the longer trend (over a year) for the stock has been up. But will that move continue? In the short term, the answer to that question could depend on the effects of speculation. But in the long term — as with all shares — it will take progress in the underlying business to keep the share price moving higher.
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But before you read on, a word of caution. Rockhopper Exploration is a tiny stock market business. Right now, the market capitalisation is only just above £57m. And the company is engaged in the oil and gas exploration and production business. But operations remain unprofitable. I’d classify the stock as highly speculative. And, to me, that means if I dabble in the shares, there’s a high chance of losing some, or all, of my money.
There was a buzz of excitement around Rockhopper some 12 years ago. Back then, it seemed as if shareholders might get rich on discoveries of hydrocarbons in the Falkland Islands region. In September 2010, the share price shot up to around 500p — a far cry from today’s lowly double-digit figure. And I’m thanking my lucky stars I didn’t get sucked into the story back then when the shares were peaking.
Imminent operational breakthrough?
But the long haul since the heady days of 2010 demonstrates how difficult it can be to commercialise discoveries of oil and gas. And that’s particularly true if the company owning the assets doesn’t have deep financial pockets. Sadly, Rockhopper’s story so far is a familiar one. And the directors estimated the most recent fundraising event in July will have given the company “sufficient working capital to the end of June 2023″.
However, Rockhopper really could be on the cusp of an operational breakthrough with its flagship Sea Lion oilfield project in the Falklands. The company recently brought in a company called Navitas as operator of the North Falkland Basin licences.
Navitas will own 65% of the project and the plan is for the company to “engineer an appropriate development concept and put together a financing package”. However, even now, the directors don’t expect the final investment decision (FID) to be taken for Sea Lion until “late 2023 or 2024”.
The long haul towards monetisation
The grind towards monetising the assets continues. And it has been a long and expensive journey. Rockhopper previously worked in a joint venture with Premier Oil (now Harbour Energy). And during that time “hundreds of millions of dollars and tens of thousands of hours” were spent engineering Sea Lion towards being a high-quality project “deliverable using proven industry technology”.
Back to the central question for me: should I buy some of the shares now? I think Rockhopper stock could become a multi-bagger one day. But it’s unclear whether that may occur from today’s level or much lower. So for me, the solution is to keep watching and waiting. But I’m not buying just yet.
