Rockhopper up on Cairn takeover rumours

published 16 January 2012

Rockhopper Exploration, the Falkland Islands focused oil and gas company, has risen this morning on rumours of a possible takeover by Cairn Energy.

The Sunday Times reported yesterday that cash rich Cairn, which made billions by developing fields in India, is interested in taking over Rockhopper's key asset, the Sea Lion field, 80 miles north of the Falklands.

The move would be a big adventure for Cairn, which has so far failed in its current campaign off the coast of Greenland.

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The problems for investors in Rockhopper are two fold.

Firstly, there needs to be huge investment in the Falkland Islands to build the infrastructure necessary to support a major oil industry, the estimated cost is £2bn.

The second problem is a slight issue with the neighbours.

Argentina still claims sovereignty over the Falklands and is supported by Brazil. Both of those countries will refuse any logistical support to production.

Argentina has also said it will prevent any companies engaged in the Falklands from working in its recently discovered shale fields.

The one problem a purchaser of Rockhopper does not face, however, is a lack of oil.

Current estimates are that the company is sitting on 500 million barrels of black gold, which would fetch around $55bn at today's prices.

Shares in Rockhopper have gained 10% this morning.

Over the last 12 months the stock has dropped 19%, although since the Sea Lion discovery in 2010 the shares have gained nearly 650%.

Its current market cap is £858m.