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Grasshopper Exploration (LSE:RKH) is one of the best performing UK stocks over the last 30 days and 12 months. The hydrocarbons explorer has seen its shares rise 50% since mid-November and have 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 going up?
Rockhopper Exploration shares are rising, boosted by a number of interesting developments at its flagship Sea Lion oil field project. In partnership with Israel's Navitas Petroleum, Rockhopper has reported significant development in the North Falkland Basin.
In November, the company said it now expects the Sea Lion project to produce 55,000 barrels per day when full production is reached. Rockhopper's update also noted a 16% increase in recoverable oil resources, now estimated at 917 million barrels, improving project economics despite an increase in projected capital expenditures to $1.4 billion.
In October, the company also secured a crucial extension of its oil production licenses in the North and South Falklands basins until December 2026, giving it continued exploration and development rights.
With first oil from Sea Lion expected in the fourth quarter of 2027, the extension not only secures the company's future in the region but also strengthens investor confidence and consequently the share price. .
Exciting, but be prepared to wait.
In fact I wrote my PhD about the journey to the first oil in a hydrocarbon frontier nation. And a key lesson is that if you think of drug discovery as a slow process, the progression from hydrocarbon discovery to first oil can take even longer.
As such, we should not be mistaken in thinking that in a few years Rockhopper will have become a profitable oil producer with positive cash flows. The company is still in the development stage, partnering, obtaining licenses and increasing its oil resource estimates.
And although Rockhopper forecasts first production in 2027, there may be obstacles. On the one hand, some reports have suggested that the Falklands government will be in conflict with the UK government following the ban on new oil and gas licences.
However, it is important to note that London lacks the authority to prevent the Falklands from exploiting the resources on its territory. These resources could also have a profound impact on the wealth of the territory.
Is it worth investing in it?
Well, like I said, I like companies with strong momentum, but I'm afraid we're running out of predictable catalysts for now. Rockhopper is still exploring other opportunities in the Falklands. Beyond Sea Lion, there is potential in fields such as Humpback and Isobel, but they are smaller and significant production from these assets is still many years away.
We must also note 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, especially if you have a bullish outlook on oil. However, given the volatility of oil prices and the long lead time before we see significant production from Sea Lion, I am not willing to make an investment based solely on these assumptions.
