Rockrose Energy Investors - RRE

Rockrose Energy Investors - RRE

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Stock Name Stock Symbol Market Stock Type
Rockrose Energy Plc RRE London Ordinary Share
  Price Change Price Change % Stock Price Last Trade
0.00 0.0% 1,848.00 01:00:00
Open Price Low Price High Price Close Price Previous Close
1,848.00 1,848.00
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money4me: I guess it is a good return for most investors though. Money in the bank and move on.
kenmitch: 100% gain is just that regardless of supposed “high” share price. A share priced at 10p will go to 20p if it doubles. And a share priced at £10 will go to £20. The only time a “high” share price is an obvious problem is if it is exceptionally “high.” E.g if share price is £2000 then 1 share costs £2000 and so it is impossible for small investors to sell a portion or take part profits if wanting to continue to hold.
costax1654x: Many investors holding both Rre and Ptal!
newkotb1: dragon, absolutely correct, buy now and without a doubt POO will be substantially higher in 12-24 months, the Saudi's and Russian's will ensure that imo. Having held through the fall and bought more on dips, never in my wildest nightmares would I have thought RRE would go sub £5 (pre Marathon deal), but she did and many lucky investors were able to jump aboard. I would be more than happy for RRE to do another RTO deal .... AA will be on the acquisition hunt that's for sure, just a matter of when not if ...Remember RRE currently trading at 65% DISCOUNT to cash in the bank.....atb
costax1654x: We are professional investors not newbies!A had Rre in the past from 500 to 2200
1vrod: Rockrose revisited at 1.5 times forecast earnings 4:30 pm by Jack Brumby 4 comments •604 Reads Since reaching a high of 2,230p on January 16th, the Rockrose Energy (LON:RRE) share price has tumbled by 35%. Today its market cap stands at £191m. Its recent update presentation shows a cash hoard of some $371m ($55m of which is restricted). Converted at current rates, that is £289m, or 151% of its market cap. Strip out the $55m of securitised cash, and the remaining $316m (£246.5m) is 129% of market cap. Priced at just 1.5 times forecast earnings and 2.8 times trailing twelve month free cash flow, you’ll be hard pressed to find a cheaper stock than this North Sea oil & gas producer on an earnings and cash flow basis. _b0M7MHMMQfc9rel5p-X3W6kaXXT36RYQDEeId8hofGYKJ_pT5fObyvNKT3agwJCKDzUu0uFf9WO8konPAKwfSnqidTJSlvEk525eAMMr2_fUQnEdpq9bKqh7XwWMU3PI_rDuq3V When you find a company on this sort of valuation, usually it is either worth nothing or it is worth multiples of its current price. Why is Rockrose so cheap? In a word: decommissioning. Rockrose is assembling a collection of mature north sea oil and gas operating assets. The key word here is mature. When oil and gas assets stop producing, wells need to be plugged up and pipelines must be cleaned. It’s an expensive business. RockRose says in its most recent update to shareholders that it has an Abandonment Half-Life (the date at which half of RRE’s abandonment expenditure has been incurred) of 2030. Operators are quickly getting better at extending the lives of these assets, however. The group says it has 82MMboe of 2P + 2C Reserves and is “designed to do business in the harsh environment of sub-$50 per barrel oil prices”. If you put that into practice then, and apply a price of $40 to its barrels of oil equivalent, you calculate that this £191m market cap company is sitting on about $3.28bn of proven and probable reserves. RockRose could well be worth many times more than 1.4 times forecast earnings, but getting to grips with this quickly evolving company is tricky... A step up in profitability... and uncertainty? Halfway through 2019, RockRose purchased Marathon Oil. This was a material acquisition. Looking at the indicative financial statements presented in the 2019 prospectus (page 105), we can see that the Dyas and Marathon acquisitions would have changed FY18 income statement: Revenue from $153m to $603m Operating profit from $25m to $350m Profit for the year from $39m to $230m It also transformed its capital structure: Cash went from $68m to $269m Restricted cash grew from $53m to $103m A c$500m pension fund (currently $83m in surplus) was inherited Total provisions for liabilities (mainly decommissioning) grew from $370m to $1,243m In January the group updated to say it has net cash of $371m, $55m of which is restricted. What is becoming clear here is that accounting subjectivity might be weighing down the RockRose share price. Oil and gas reserves are subjective estimates. Decommissioning liabilities are subjective estimates. Pension fund liabilities are subjective estimates. And each of these estimates are worth hundreds of millions of dollars to RockRose. This introduces a significant level of investment risk. To some, it will be a tolerable level of risk and to others it will be unacceptable. I see why RockRose shares are cheap, but are they too cheap? Given RockRose’s relatively short track record and rapidly evolving profile, it is tricky to piece together an up-to-date picture of the underlying health and operations of the enlarged company. The timing of the Marathon acquisition is slightly frustrating as it falls just outside of the HY19 reporting period. Consequently, RockRose’s much-changed capital structure has yet to be confirmed in any official accounts. Last year, RockRose released its annual report on the 30th of April so this suggests we will have more information on the enlarged group around that time. Looking into the pension fund The inherited pension fund is significant. As at 31 December 2018, on an accounting basis, the pension fund had: $511m of liabilities, $594m of assets, and An $83m surplus. In the 2019 Prospectus, RockRose says: To manage and curtail risks associated with the DB Scheme the Company intends to advance proposals to move the DB Scheme to a full buy-out position in the near term. This involves transferring all of the DB Scheme to an insurance company who will, in return for a lump sum payment, take over the DB Scheme and all of its liabilities to the members. Completing a buy-out process is subject to certain specific risks, primarily the agreement of the cost of such a transfer and determining the agreement to such a process from the transfer of the DB Scheme. For shareholders, this introduces more uncertainty. How much will this lump sum payment be? And if it is too much to pay, what then? In note 24 of the 2019 Prospectus, we see that “MOUK agreed a funding plan with the trustees whereby annual contributions of £13,000,000 will be made until 31 December 2020.” I am assuming this commitment has been transferred to RockRose. The fact that MOUK agreed to make annual contributions of $13m annually suggests the pension fund was in deficit at the last actuarial valuation (carried out on 31 March 2016). The fund is probably due another actuarial valuation now, and any changes to assumptions here could lead to a widening or narrowing deficit. This is more relevant than ever given increased talk of interest rate cuts. There is no mention at all of any pension fund in RockRose’s January update. Unless I have misunderstood the situation here, I’m not sure this risk has been clearly communicated to investors. I would welcome greater clarity on this point. Digging into decommissioning The UK Continental Shelf (UKCS) is mature by global standards and this fact brings forward the specialised task of decommissioning assets at the end of their economic life. The challenge is significant: it will cost billions and span decades. The government and various bodies are aware of this fact and there are powerful, coordinated forces trying to manage the issue. Estimates of scope, complexity and cost vary but there are over 320 fixed installations, over 3,000,000 tonnes of structure, over 75,000 tonnes of subsea structures, over 20,000km of pipeline and approximately 4,000 wells along the UKCS. All of this must be decommissioned or re-used. According to the Oil and Gas Authority, the decommissioning activity is likely to peak in the early 2020s. Source: OGA UKCS Decommissioning 2019 Cost Estimate Report 2MEampDwlWaHcfWIW1Pjr4SVRn0XJNJKsknYXDmWkxnQdVjJ7vYzM0GpdIdEarFVx1wQsD7RO-6pQ626JbuA0waxKXtio4rvVNd6vmNrqn4ECTCTTfBMQkkEliv8laBEmmGgF5rd The current mid-point cost estimate for UKCS decommissioning to 2050, prepared by an independent industry expert for the OGA and DECC, is approximately £47bn (in today’s money), with a stated uncertainty range of +/-40%. There are some key players to be aware of when it comes to decommissioning, namely: The Department for Business, Energy, & Industrial Strategy (BEIS) The Offshore Petroleum Regulator for Environment and Decommissioning (OPRED), and The Oil & Gas Authority (OGA) The responsibility for ensuring that the requirements of the Petroleum Act 1998 are complied with rests with the Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) which sits within the Department for Business, Energy and Industrial Strategy (BEIS). The OGA works with BEIS to assess decommissioning programmes on the basis of cost, future alternative use and collaboration. The OGA established an important document - The Maximising Economic Recovery Strategy for the UK (MER UK) - that seeks to significantly reduce decommissioning costs through increased efficiency, innovation, and industry transformation. In the graphic above, you can see that already 2019 cost estimates are lower than 2018 estimates. The OGA has set an industry target to reduce the cost of decommissioning by some 35%, down from £59bn to £39bn. This cost reduction is consistent with other industries like automobiles and aviation. It goes into detail regarding how this might be accomplished on this microsite. In July 2019, the OGA published a new cost estimate report. In it, the agency says that operators are rapidly getting better at providing greater certainty of actual UK decommissioning costs and several have already achieved significant cost savings. This all sounds positive for RockRose. P50 cost estimates have fallen every year as the OGA strives to meet its cost reduction target: 2017 - £59.7bn 2018 - £55.7bn 2019 - £49bn Is the government doing our due diligence for us? The BEIS says, in Assessing the Financial Capability of Offshore Oil and Gas Companies to Deliver Decommissioning Obligations, that it must be confident that relevant parties are always capable of meeting their decommissioning liabilities. The government therefore regularly assesses the financial capability of operators, their joint operating agreement partners and other parties with decommissioning liability to meet their decommissioning obligations, reviewing each field on its own merit. Encouragingly, the BEIS says: When an asset sale is agreed for a field, we will assess the financial strength of the company involved... Each assessment covers the individual fields as well as the portfolio of decommissioning liability. OPRED will also seek to meet with the new entrant to discuss our process for financial risk assessment and understand their plans going forward. This activity is good news for prospective investors. There is a clearly defined regulatory regime controlling the decommissioning of offshore oil and gas installations. Every time RockRose buys an asset, it presumably gets vetted by the Offshore Petroleum Regulator. The company says it has developed decommissioning programmes for all of its operating assets and that these are in accordance with the relevant legislation. You can dig into the details of the decommissioning programmes of the relevant assets in this table. This sounds like a high level of due diligence conducted by government authorities. The BEIS does say, however: If we conclude that there is a risk that the current parties with an interest in a field may be unable to meet their obligations... we may request financial security to be set aside, in an appropriate format, to meet the decommissioning liability associated with the field. RockRose has so far set aside around $55m in securitised cash for this purpose. January update Going over the financial highlights of the group’s recent HY results for the six months to 31 December 2019: Pro forma adjusted EBITDA of $116m Net cash position of $371m ($55m restricted) Total FY19 dividend of 85p/share anticipated (5.7% forecast yield) 60.8MMboe of 2P Reserves, 82 MMboe 2P + 2C Resources The group also updated on the multiple steps it is taking to extend the operating lives of its assets - this is a key variable in deciding whether or not the group’s shares are cheap. It is an encouraging update, on the face of it. RockRose does not update investors with regards to its pension fund or decommissioning liabilities, however. For this, we will have to wait for the group’s annual report. The enlarged group does reference its $371m of cash. The unaudited pro forma statement of net assets of the enlarged group in the 2019 Prospectus contains a similar figure. It also records total provisions for liabilities of $1,243m. And then there is the inherited pension fund assets of $594m and liabilities of $511m. There are some pretty large numbers flying around here. In my view, RockRose is wise to build up a cash pile - not just to acquire assets but as insurance against its decommissioning liabilities and its (hopefully) soon-to-be offloaded pension fund. Considering its liabilities, I think a cash cushion is a must. Management clearly agrees: Whilst the Group has paid all of its actual decommissioning costs on time and decommissioning activities to date have been completed on time and to budget, the Group continues to adopt a prudent and conservative approach to maintaining cash reserves to cover contingencies, it is possible that unexpected or unanticipated accelerated decommissioning costs might have a negative effect on the Group’s ability to pursue other acquisitions or development opportunities within its existing portfolio of licence interests. Given the amount of subjectivity in RockRose’s accounts, I see why the shares are cheap. But are they too cheap at 1,430p? Quite possibly, given the group’s cash pile. What’s more, with government and industry forces aligned in trying to reduce decommissioning costs and extend asset lives, it is possible that RockRose’s provisions here will end up being too conservative. I do wonder why the company does not buy back any of its own shares at these levels, though... I’m tempted to wait for RockRose’s annual report before making a more conclusive decision on this stock. Perhaps sitting on the fence for now will cost me, but I would happily trade some upside in exchange for more detail on the enlarged group’s decommissioning liabilities and pension fund status.
maccamcd: research from Whitman HowardRockRose Energy plc*Company update | UKCS offers land of opportunityRecent years have seen a wave of asset divestments from the Majors, as they seek to streamline operations and adopt core asset/area strategies while divesting non-core assets, or even exit the UKCS entirely. This has presented a wealth of opportunities for independent E&P companies, with the likes of RockRose, Premier Oil and Ithaca Energy all acquiring asset packages in the last 12 months. Investors have (largely) welcomed these deals, as the acquisitions have delivered a step-change in production, revenue and added future upside. However, the strategic rationale behind each deal varies, and we aim to touch on this whilst showing the relative metrics and upside potential offered by the aforementioned deals.RockRose strikes best dealOf the four deals examined, RockRose's acquisition of the Marathon assets is, in our view, the best for investors. It is markedly cheaper on multiple metrics, whilst also being completed without need for a dilutive equity raise or addition of senior debt. We remain of the opinion that investors have failed to recognise this and would anticipate the current discount to unwind as investors recognise the potential for both capital and dividend growth. We would argue that Premier Oil and Ithaca are making acquisitions to cover fundamental weaknesses – respectively, a weak balance sheet and underperforming flagship asset. RockRose is in a very strong position to make further accretive acquisitions and can readily maintain or increase the dividend. We reiterate our BUY recommendation, with a TP of 3475p.
dragon35: I have read the full court document. Paragraphs 120 and 121 are the key sections that Dan_the_epic has selectively taken elements from. I believe he is raising valid concerns but in a misleading way. The Court papers specifically state, I quote "[t]he result of this evidence therefore is that Mr. Mann understood that the pension issue did not pose any material risk for RRUK because it had provided for its liability" and they further state that the prospectus accounted for the liability. The issue is primarily that the (54% of £209m which is approx £110m liability for RRE) liability may become due more quickly than the parties had anticipated and not that the parties have not anticipated it and made provision for it! In addition the pensions liability is subject to a Deficits Recovery Charge from all participants that is annually billed and has been catered for within the accounts. I am not saying the pensions issue raised by Dan is a red herring, but I am saying that Dan is being very disingenuous and scaremongering without full disclosure of the facts -particularly to people that have put their hard earned money into RRE. I am certainly not going to sell a single share based on liabilities that are already catered for and included within the RRE business plan. Additionally why sell now when TAQA have stated they will be "substantially" reducing the decom liabilities and generating a £500m improvement to cashflow (para 75 of judgement). Plus we have the increased production to come and an acquisition at some point. The $1.8bn decommissioning liability is before the affects of tax rebates and incentives which is why the RRE audited accounts and prospectus show the net liability nearer $400m – again slightly misleading from Dan - but that is because it is stated that way at para 74 of the judgement so I can understand why he jumped to that conclusion. Also remember RRE is only liable for a proportion of the overall decom costs hence the $400m valuation in the accounts and prospectus. Also the total decommissioning liabilities (net to RRE) over the next 10 years (as stated within the prospectus and audited accounts) are £341m. This sits against a restricted cash account over the next 10 years of £380m (i.e. £40m more than the liabilities) and a cash in the bank of £1.1bn (this is basically the profit over 10 years or as I like to think of it the investors “buffer” against bad news). Dan, Nigel and anyone else can have a view, but they should not scare investors with selective information to their bias without giving both sides of the story.
lukead: Nigelpm, you go on twitter, you may have seen the following today, courtesy of Hydrocarbons Central, its an overview of RRE, may be of use to others, if not you, Pasty and spawny ====================================================================== Rockrose Energy. In a consolidation zone. Arran on the horizon in 2021. Share price = 1925p , My minimum price objective (assuming no acquisitions) = 2800p. ======================================================================= Rockrose is a stock I’ve held for getting on 24 months and it has been a great performer. While the share price has rocketed, acquisitions are what fuel the Rockrose story and have caused a huge uplift in valuation. The company was only founded in 2015. The objective was to build a production-led company able to withstand a very harsh oil and gas price environment, which inspired the name Rockrose. Rockrose’s acquisition trail has seen the company bulk up at a pace. This always introduces risk but management are operationally competent and the valuation here is modest. Purchases have included Egerton, Sojitz, Idemitsu, Dyas assets in the Netherlands, and Marathon’s UK assets last year. The share price was suspended for half a year with the Marathon deal because it was so large, but investors were rewarded for their patience. The share price soared from around 800p to nearly 2000p on relist. But the stock has hardly budged since and is at 1925p today. Progress has been hampered by profit-taking and because 2019 was a year of heavy investment as they started to bring the Arran project onstream. That has stunted cash growth and capex will be high again in 2020 at $200m but as 2021 draws closer investors can look forward to more and more of the capex being fully contingent (probably under $30m firmed up today). That should help the market drive the next leg higher. The market valuation today is £252m. For that, you get expected 2020 production of 21,000 barrels of oil equivalent per day (up 9%), 2P and 2C reserves of over 85 million barrels equivalent (63 mn reserves), and total unrestricted cash of £240m. Why is the valuation this low? Rockrose is a part play on decommissioning liabilities. These are costs to be incurred to get rid of the metal structures in the ocean used during the production phase. In many cases, they need removing to let the water ecosystems recover in the future and remove these man-made structures. These are not small liabilities. They were $370m at last count, or £280m. That wipes out the total cash, but that’s the wrong way to look at them as these liabilities keep getting pushed back and reduced in size due to technological breakthroughs and efficiencies pursued by companies like Augean. It doesn’t incur interest, and Rockrose should be able to cover such liabilities between the big cash balance it has and future production. It’s helpful for Rockrose to keep on suppressing those liabilities and improve production efficiencies as their bought assets have oft been neglected by operators looking to exit the North Sea. More large scale asset buys may be on the cards It has been rumoured in the press that they bid $1.2bn for Siccar Point assets in the North Sea. That would have a been a huge acquisition that shows the level of ambition of Rockrose. In this case they were outbid by a wide margin. That’s a risk. That competition for these assets is on the rise, but Rockrose management are skilful bidders, and there are more than enough packages up for grabs for the story to continue in 2020. Short term there are more catalysts in the form of infill well drilling results from West Brae. Rockrose has mature assets so does production just fall forever from here? Not in the short term. Production should be up 9% next year, and should gravitate towards 23-25,000 boepd when Arran and other prospects come online. That provides comfort that this is not a total managed decline story yet, and that is before 2C resource exploitation which could leave it higher still ====================================================================== Acquisitions are part of the Rockrose story and they in the past have been the engine for investors getting paid on their investment. In the mean time, the market cap is supported by what I view as a strong balance sheet covered by cash, and a series of assets which are becoming increasingly well invested by Rockrose. My minimum price objective for this year is 2800p. I feel this is conservative and assumes no further M&A (or at least the M&A creates no value for investors). As an extra, Rockrose pay you to wait. A total dividend of 85p for 2019 is a 4.5% yield.
mr. t: Not sure what your point is?I have no expectation on short term share price, as I long ago realised I'm hopeless at predicting them.I hope RRE's goes like JSE after their Q3 results - some potential investors not close to the company thought the financials were poor yet the share price is up over 25% since as the market sees the long term prospects. Maybe RRE will do the same, maybe not?One thing I do think is that some of cash predictions presented by some investors on twitter are optimistic.
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P: V: D:20211023 02:05:44