Rockhopper Exploration (LSE:RKH) is a top performing UK stock over the past 30 days and 12 months. The hydrocarbons explorer has seen its shares surged 50% since mid-November and the stock has almost doubled in value since the beginning of the year.
Personally, I like stocks with momentum. So, is Rockhopper Exploration a hidden gem on the UK stock market?
Why is the stock rising?
Rockhopper Exploration’s stock is on the rise, fuelled by a series of exciting developments in its flagship Sea Lion oil field project. Partnering with Israel’s Navitas Petroleum, Rockhopper has reported significant development in the North Falkland Basin.
In November, the company said that it now expects the Sea Lion project to yield 55,000 barrels per day when peak production is reached. Rockhopper’s update also noted a 16% increase in recoverable oil resources, now estimated at 917m barrels, improving the project’s economics despite an uptick in projected capital expenditures to $1.4bn.
In October, the firm also secured a crucial extension of its petroleum production licences in both the North and South Falkland Basins until December 2026, providing continued exploration and development rights.
With first oil from Sea Lion expected in Q4 2027, the extension not only secures the company’s future in the region but also strengthens investor confidence, and resultantly, the share price.
Exciting, but be prepared to wait
I actually wrote my PhD about the journey to first oil in a frontier hydrocarbon nation. And one overriding lesson is that if you think drug discovery is a slow process, the progression from hydrocarbon discovery to first oil can take even longer.
As such, we shouldn’t be misguided into thinking that in a few years Rockhopper will have become a profitable oil producer with positive cash flows. The company is still very much in the development stage, partnering, securing licenses, and increasing its oil resource estimates.
And while Rockhopper is forecasting first production in 2027, there may be speed bumps. For one, some reports have suggested that the Falkland’s government will be in conflict with the UK government following a ban on new oil and gas licences.
However, it’s important to note that London lacks the authority to stop the Falklands exploiting resources in its territory. These resouces could also have a profound impact on the territory’s wealth.
Worth investing in?
Well, as I said, I like companies with strong momentum, but I fear we may be running low on predictable catalysts for now. Rockhopper is still exploring other opportunities in the Falklands. Beyond Sea Lion, there’s potential in fields like Humpback and Isobel, but they’re smaller, and significant production from these assets remains many years out.
We also have to keep in mind that oil prices fluctuate, and this will have a significant impact on the profitability of Rockhopper’s assets. If oil prices stay high or increase, it could mean that Rockhopper is undervalued, particularly if you have a bullish outlook on oil. However, given the volatility of oil prices and the long timeline before we see significant production from Sea Lion, I’m not willing to make an investment based purely on these assumptions.
