ROC 0.00% 68.5¢ roc oil company limited

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    Tuesday, 6 September 2005
    Data as at Tuesday, 6 September 2005
    ROC Oil Company
    We initiate coverage at the interim 2005 result

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    Stock: ROC AU


    ROC Oil Company (ROC) reported a first half 2005 net profit of $61.3m (compared with a loss in the prior period of A$12.9m), which was largely due to the sale of the Saltfleetby Gas field (which provided a first half 2005 net profit of $80.7m).

    Impact

    First half 2005 result. Stripping out the Saltfleetby sale as a significant item, the first half 2005 adjusted loss was $19.4m, compared to a $12.9m loss for first half 2004. The first half 2005 result included $13.4m exploration expensed and a $9.5m provision for bad debts. Production for the half averaged 38 barrels of oil equivalent per day, significantly lower than first half 2004 at 3072 barrels of oil equivalent per day following the Saltfleetby sale. 2005 is expected to be the low point for ROC production.

    Development projects. ROC has four committed oil projects due online over the next 15 months. The ROC operated Cliff Head development (ROC 37.5%) and Woodside (WPL) operated Chinguetti project (ROC 3.25%) are scheduled to start up in the first quarter of 2006. In fourth quarter 2006 production is expected to commence from the company's UK fields Blane (ROC 12.5%) and Enoch (ROC 12%).

    Further growth potential. The company has further production growth potential in Mauritania with the Tiof and Tevet oil discoveries and in China where ROC is currently undertaking pre-development studies for an oil development in the Beibu Gulf (ROC 19.6%). On the exploration front the company is acquiring seismic in Angola (ROC 60%) and holds a 20% equity interest in the BHP operated Jacala-1 exploration prospect due to be drilled during in the fourth quarter of 2005.

    Strong financial position. Following the Saltfleetby sale ($109m cash) and the January capital raising ($19.8m), ROC is debt free with $154.9m in cash and receivables. This is expected to be heavily drawn down over the next 12 months to fund development commitments and exploration work.

    Price catalyst

    12-month price target: A$2.87.

    Catalyst: Confirmation of the development of long term growth projects such as Tiof and Tevet in Mauritania, West Africa.

    Action and recommendation

    The ROC share price has pulled back 15% from a mid-August high of A$2.70 to its current share price of A$2.30. We initiate coverage with an outperform recommendation with the share price trading at a 25% discount to our target price of A$2.87 per share.


 
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