Happy to have exited ARM Holdings short last week at a profit, after it hits ten year high

ARM Holdings (ARM) rose 6.5% or 40p to a ten year high today as Goldman Sachs raised its price target to 800p saying a valuation of 23 times 2015 earnings was justified for a “strategic asset”. Goldman said that whilst ARM was earning 1 per cent royalties at the moment, newer deals had a charge closer to 2 per cent. Looks like the directors sold their shares at the wrong time last week and a relief for me that I closed my short at a profit at less than 590p with the shares hitting 651p today.

Gulf Keystone Shaikan 3 update

Gulf Keystone (GKP) announced today that Shaikan-3 shallow appraisal well in the Kurdistan Region of Iraq has achieved a flow rate of 9,800 barrels of oil per day, 30% over the 7,480 barrels per day previously achieved. The shares were pretty steady, up 1.5p at 173p. My previous post on Gulf Keystone, questions buying the shares at this sort of level given the geopolitical risks. Watching for a buying opportunity below 140p, but not diving in yet (http://contrarianinvestoruk.blogspot.com/2011/02/gulf-keystone-petroleum-interesting.html).

Sirius Minerals falls 11% on fears about Chinese Adavale partnership

I missed the significance of the Sirius Minerals  (SXX announcement) this morning in relation to the potential partnership with Sino-agri Mining on the Australian Adavale potash project. The implications are covered by the story on the iii.co.uk site below.

http://www.iii.co.uk/articles/14288/partnership-doubts-knock-shares-sirius

Partnership doubts knock shares in Sirius

Mon, 14/02/2011 - 11:06 | Esther Armstrong

Shares in AIM-listed potash developer Sirius Minerals (SXX) slumped on Monday after the firm cast doubt on the potential Chinese partnership for the Adavale project in Queensland Australia.

Back in August Sirius announced it had entered into a memorandum of understanding (MOU) with Sino-Agri Mining Industry to explore ways of working together to exploit Sirius’s wholly-owned Adavale project.

The 180 initial exclusivity period on the MOU is due to end tomorrow, but Sirius said it is continuing discussions with Sino-Agri about potential commercial agreements and that it is committed to building a long-term mutually beneficial partnership with the Chinese firm and more broadly with China.

In other areas, the group said the integration of the York Potash project was proceeding well, following the acquisition announced in January.

Sirius added that the project was moving forward on many fronts including the continued acquisition on mineral rights within the project area, analysis of extensive amounts of historical seismic data and selection of locations for the initial drilling campaign.

Sirius also updated on its operations in North Dakota and the Canning Basin project in Australia. It has acquired more land at its Williston Basin in North Dakota and continued its studies on the Canning Bain, but has yet to make any material progress in the region.

Rockhopper, Bowleven and Xcite market caps show Bowleven looks very cheap

At the current share prices of RKH (279p), BLVN (322p), and XEL (372p) we have the following valuations  - see table below (based on a conservative 5 dollar per barrel model). Bowleven looks very undervalued given its finds are valued at over £7 a share, even with the political risks of working in Africa. RKH and XEL assume no exploration upside or resources upgrades, which is unlikely and still are valued at £2.05 and £3.91, excluding cash. It is worth pointing out that Rockhopper has around £200 million in cash (which will fund at least 8 more appraisal wells and seismics) and Xcite Energy has in the region of £40 million (though most of this will be spent on the Rowan Norway rig). Most takeovers are at least the 8-10 dollar per barrel range for proven reserves following a full CPR (Competent persons report).

Bad day at the office for Contrarian portfolio

Hmmm i've had better days! Every stock is down in the Contrarian Investor UK portfolio apart from Rockhopper (after a shocker on Friday) and Angel Mining, so its a case of taking the pain for today. Xcite is recovering from a sharp dive this morning that made no sense at all but it's still down 4%. Bowleven can't stop falling and Sirius has a 10% fall after its poor RNS regarding its Chinese Adavale project partnership.

It's sometimes about courage in your convictions when the portfolio takes a tumble. I have faith that research is correct on all my holdings and that they are all worth much more than today's share price action indicates. Its about taking the rough with the smooth in this game! This is what being a true Contarian investor is about and on some days it can be uncomfortable! Sometimes it takes more than a few days for a trade to come good, but inevitably they will with patience - this game is not about luck or gambling its about "buy and research" then do even more research (and don't believe everything you read on a bulletin board or even a blog!!).

Sirius Minerals issues RNS but little to say

Sirius minerals (sxx) issued a progress update RNS this morning, but saying nothing new and hence it is seeing an 11% fall this morning. Why bother until they had something more concrete?

Plenty of swings and roundabouts on Xcite this morning

Xcite Energy (xel) opened up 10p first thing this morning on the Rowan Norway rig RNS. But it didnt last long as disapointment grew that the unlikely scenario of a takeover bid wasn't announced. It has moved as low as 368p to buy. I took the opportunity to sell a bit on the spike up and have been buying on this dip. Crazy that the price is down when a major milestone of a production rig being signed has been announced. The CPR is due any time. I'm sure the market makers are gratefully accepting those shares from the those selling below 370p! If there were buyers last week purely on a takeover rumour, they weren't very clever! Wait a couple of weeks, i'm sure holders will be rewarded with nice news,

Xcite Energy signs Rowan Norway rig deal- no fireworks yet!

So no farm in, no takeover talks, no Rowan Stavanger for Xcite Energy (XEL). An RNS this morning confirms that the deal with British American Offshore for the Rowan Norway is in the bag with delivery Q4 2011.  So Xcite will have oil flowing by the end of this year and with Brent Crude at around $100 a barrel things are looking mightily good. Now the key news is the CPR document which hopefully will upgrade resources significantly.

4 February 2011

Drilling Contract for "Rowan Norway" N-Class Jack-up Rig

Xcite Energy is pleased to announce that its 100% subsidiary, Xcite Energy Resources Limited ("XER"), has entered into a binding drilling contract with British American Offshore Limited("BAOL"), part of Rowan Companies, Inc. for the N-Class "Rowan Norway", a harsh environment, deep water jack-up unit, designed and built for simultaneous drilling and production, which is currently under construction.

The Rowan Norway is expected to be used to commence the first stage production of the Bentley field, the planning for which is currently being undertaken. XER expects the Rowan Norway to be made available in the fourth quarter of 2011.

Return to the madness of the dot-com bubble?

There were reports in the press last week that Twitter had been in talks with both Google and Facebook, with some estimates putting the value of the company at $10 billion. This follows the purchase of the online site the Huffington Post by AOL $315 million. There was talk that Facebook is now valued at $50 billion and Linked in announced its $175 million IPO (LinkedIn turned a profit of $10.1 million on revenue of $161 million in the first nine months of 2010, according to documents filed to the Securities and Exchange Commission).

AOL itself is infamous for the $164 billion merger with media group Time Warner completed In January 2000 at the height of the dot-com frenzy, which created AOL Time Warner. In 2002, the company was forced to report a loss of $99 billion due to the goodwill write-off related to AOL, at the time, the largest loss ever reported by a company. In 2003, the company dropped the "AOL" from its name, and removed Steve Case as executive chairman. In May 2009 Time Warner announced that it would spin off AOL as a separate independent company, with the change occurring on December 9, 2009.

Looks like we're heading for the day's of the 1998-2000 dot-com bubble all over again! (see my previous post on the anniversary of the bubble in March 2010 - http://contrarianinvestoruk.blogspot.com/2010/03/10th-anniversary-of-internet-bubble.html)

History of key Do-com busts from Wikipedia (http://en.wikipedia.org/wiki/Dot-com_bubble)

• Boo.com, spent $188 million in just six months^[17] in an attempt to create a global online fashion store. Went bankrupt in May 2000.^[18]
• Startups.com was the "ultimate dot-com startup." Went out of business in 2002.
• e.Digital Corporation (EDIG): Long term unprofitable OTCBB traded company founded in 1988 previously named Norris Communications. Changed its name to e.Digital in January 1999 when stock was at $0.06 level. The stock rose rapidly in 1999 and went from closing price of $2.91 on December 31, 1999 to intraday high of $24.50 on January 24, 2000. It quickly retraced and has traded between $0.07 and $0.165 in 2010 .^[19]
• Freeinternet.com – Filed for bankruptcy in October 2000, soon after canceling its IPO. At the time Freeinternet.com was the fifth largest ISP in the United States, with 3.2 million users.^[20] Famous for its mascot Baby Bob, the company lost $19 million in 1999 on revenues of less than $1 million.^[21][22]
• GeoCities, purchased by Yahoo! for $3.57 billion in January 1999. Yahoo! closed GeoCities on October 26, 2009.^[23]
• theGlobe.com – Was a social networking service, that went live in April 1995 and made headlines by going public on November 1998 and posting the largest first day gain of any IPO in history up to that date. The CEO became in 1999 a visible symbol of the excesses of dot-com millionaires.
• GovWorks.com – the doomed dot-com featured in the documentary film Startup.com.
• Hotmail – founder Sabeer Bhatia sold the company to Microsoft for $400 million;^[24] at that time Hotmail had 9 million members.^[25]
• open.com - Was a big software security producer, reseller and distributor, declared in bankruptcy in 2001.
• InfoSpace – In March 2000 this stock reached a price $1,305 per share,^[26] but by April 2001 its price had crashed down to $22 a share.^[26]
• lastminute.com, whose IPO in the U.K. coincided with the bursting of the bubble.
• The Learning Company, bought by Mattel in 1999 for $3.5 billion, sold for $27.3 million in 2000.^[27]
• Think Tools AG, one of the most extreme symptoms of the bubble in Europe: market valuation of CHF 2.5 billion in March 2000, no prospects of having a substantial product (investor deception), followed by a collapse.^[28]
• Xcelera.com, a Swedish investor in start-up technology firms.^[29] "greatest one-year rise of any exchange-listed stock in the history of Wall Street." ^[30

China overtakes Japan as world's second biggest economy

Japan has reported a preliminary 0.3 % decline in GDP (gross domestic product) in the last quarter of 2010 as a government stimulus package which included subsidies on eco-friendly cars came to an end in the previous quarter. Japan's GDP fell by 6.3% in 2009 and 1.2% in 2008. The poor state of the Japanese economy means that China is now clearly ahead of it in terms of economic output after itself producing a 10% GDP rise in the last quarter, making China the second biggest economy in the world after the U.S..

Could it be RNS time for Xcite Energy tomorrow at last?

Investors in Xcite Energy have been patiently waiting for news on the Rowan Norway rig. Now the deadline (extended for the second time) passed on Friday, so it seems pretty unlikely that CEO Richard Smith will either delay things yet again or issue no news at all. I'm sure lots of fellow Xcite Energy investors will be glued to their computers tomorrow morning waiting for the all important RNS.

I would be surprised if we see a takeover announcement (but of course it would be pleasant surprise), more likely I believe is that the CPR (Competent Persons Report) may be issued together with a farm-in announcement from one of the Bentley Alliance partners.  It would seem incredible that the delay is purely caused by price or contractual negotiations with British American offshore who own the Rowan Norway rig. Of course the other scenario is that production may be accelerated by leasing the Rowan Stavanger before it goes to Talisman Norway in the North Sea. 

So lots of possibilites, but it seems the least likely that they'll just keep quiet. If its another delay...they're lawyers need a damn good talking to!! Anyone seen any Champagne bottles piled up in a skip outside the offices in Banchory recently?

I'm keen to invest in some other companies hence I've added my watch list page (http://contrarianinvestoruk.blogspot.com/p/watch-list-shares.html) but a big chunk is tied up in Xcite so little flexibility at the moment. Come on Mr Smith, lets get this share moving again, we're fed up with it under £4!!

Have we learnt anything from the last financial crisis of 2008 & 2009?

The 2008/2009 financial crisis saw the bankruptcy of Lehman Brothers and the effective nationalisation of Royal Bank of Scotland, Northern Rock, AIG, Lloyds, Freddie Mac and Fannie Mae and Citigroup. We saw the takeover of HBOS by Lloyds TSB, Bear Stearns by JP Morgan Chase, Merril Lynch by Bank of America and Wachocia by Wells Fargo. Without the U.S. government backed TARP (Toxic Asset Relief Programme) and the U.K. government backed cash injections it is likely that the global financial system could have collapsed following the Lehman bankruptcy, a spiral that ultimately was caused by the Sub-prime mortgage debacle in the United States.

The U.S. TARP was agreed to purchase assets and equity from financial institutions to strengthen its financial sector which was signed into law by President Bush on October 3, 2008 and allowed up to $700 billion to be allocated to the programme. However by the end of 2010, much of the money used had been repaid, with the final liability to the U.S. tax payer of as little as $20-30 billion. Whilst $245 billion was pumped into financial institutions, over $169 billion has been paid back, including $13.7 billion in dividends, interest and other income, along with $4 billion in warrant proceeds as of April 2010.

The U.K. tax payer has spent around £850 billion pounds propping up the financial sector including the nationalisation of Northern Rock in February 2008 and now owns owns 84% of Royal Bank of Scotland (RBS) and 41% of Lloyds. The U.K. government spent £45.2 billion rescuing RBS in November 2009 at an average price of 49.9p (currently 44p) and Lloyds Banking group cost at an average of 75p (after open offer, currently 66p) in return for insuring £260bn of the group's toxic assets.

Have any lessons been learnt from this near calamity, which nearly made the Great Depression of the 1930's and 1940's (following the Wall Street crash of 1929) look like a picnic?

The causes of the 2008/2009 financial crisis are many and too complicated to go into here, but there are several good books on the topic (I particularly enjoyed Andrew Ross Sorkin's Too Big too fail). However there is some examples of key themes which contributed to the near collapse:

1. Excessive leverage by financial institutions - excessively large bets without oversight by the SEC, FSA etc. of the potential risk and capital required. Although stress tests have been done both in the U.S. and EU, the severity of these tests is still under question. LESSON LEARNT - NO

2. Risk taking culture exacerbated by focus on short term profit for bonuses - although Project Merlin in the UK has tried to address short term versus long term financial incentives for bankers, it looks like a damp squib. There is reluctance to adopt a true global compensation system for the financial services industry and individual countries are worried about draconian action unilaterally because of the threat that banks and hedge funds will relocate elsewhere. Hence, the problem is still there. This is likely to be illustrated by Barclays Capital (Barcap) this week, since it is expected to announce that it has handed an even bigger share of revenues to its investment bankers. Whilst individual bonuses have been cut by as much as 10%, the overall compensation pool covering pay and incentives will have risen to about 40% of revenues. LESSON LEARNT- NO

3. Too much global liquidity due to low interest rates and sovereign wealth funds -  this situation is unchanged, interest rates are at historical record lows and China and other countries with plenty of capital to invest are driving up asset prices. The U.K and U.S. quantitative easing programmes, where government bonds are bought has probably heightened the problem and encouraged money flow to riskier assets with larger returns.  LESSON LEARNT - NO

Overall, we seem to be in little better shape to deal with the next financial crisis and it will come one day. Being very gloomy you could see a scenario where central banks are forced to raise interest rates because of rising inflation (caused to some extent by speculation in commodities fueled by cheap money), which kills economic growth and leads to financial institutions taking big write-downs in their assets. Do they have enough capital next time to deal with the darkest of financial scenarios?

Nokia and Cisco former tech bell weathers hit turbulent times

Two former technology bell weathers, Cisco of the U.S. (CSCO) and Nokia of Finland (NYSE: NOK), have had a bad week, the former because of disappointing earnings and the latter because of its announcement of a mobile phone alliance with Microsoft (MSFT).

Canadian, Stephen Elop and ex-Microsoft executive, became the new CEO of Nokia Corporation in September 2010 September 21, 2010, taking over from Finn, Olli-Pekka Kallasvuo.

On 11 Febuary 2011, Nokia entered a strategic alliance with Microsoft, and announced it would replace its phone operating systems Symbian and Meego with Windows 7 for its smart phone devices. Bing, Microsoft's search engine will the search engine for all Nokia products. Nokia's shares fell 14% ($1.5) on Friday, to $9.36 on the NYSE, having declined two-thirds in the last 3 years.

The rationale for the deal appears to make sense given Nokia's weakening position in high end mobile or smart phones partly driven by the inadequate Symbian operating system. However many have questioned whether two under performing companies in the mobile market can come together to make a success of it. Analysts have questioned why Nokia has made this deal to pay royalties to Microsoft to use Windows 7 Phone when they could have incorporated Android for free from Google. Its seems unlikely that Nokia/Microsoft can really take on the might of the Android and Apple products and hence the sharp drop in the share price. In addition to these changes, changes to executive management and a general restructuring were announced which underscores how this once dominant company has fallen on hard times.

The transition to the new system will occur in 2013 and Credit Suisse thinks Nokia’s smartphone market share could fall from almost 30 per cent to 15-odd per cent during the next year alone, which would reduce earnings from €0.50 per share in 2010 to more like €0.40 in 2011, or a forward price/earnings of 18. With the lack of visibility and poor outlook, the shares could fall even further.

Networking and IT infrastructure company and a Dow component, Cisco Systems , fell from over $22 to finish the week at $18.70, a fall of 15% following its latest earnings report.

Margins were hit again this quarter and the forward guidance was uninspiring. The company losing market share in two significant product categories, switching, with sales down for three consecutive quarters and routers sales declining 8.9% quarter-over-quarter.

The forward price/earnings is around 10 which isn't expensive and though this monster of a company has a $104 billion market capitalisation, it has $30 billion of cash. Many are saying that Cisco's best days are behind it and it has become too big following its large acquisitions over the last few years.

Clearly the CEO's of Nokia and Cisco are going to have some sleepless nights and the competition isn't going to get any easier. Adapt, or die!

Portfolio review of the week - 12th February 2011

The FTSE 100 finished up 43 points at 6,063, a rise of 1% for the week on news that Egyptian president Hosni Mubarak had stepped down. The Dow Jones Industrial Average rose 44 points, or 0.4%, to 12,273, a rise of 1.5% on the week. It was the Dow's highest close since June 2008. WTI Oil futures dropped a dollar yesterday to $85, on the news from Egypt.

The Contrarian Investor UK Portfolio had a mixed week, with gains from Xcite Energy (XEL) tempered by a large fall in Rockhopper (RKH), though XEL represents a much larger part of the portfolio. The unexpectedly large drop in RKH, meant that my margin requirements were looking a little stretched and therefore I reluctantly had to close a couple of Xcite spread bets late on Friday, albeit at a profit, and my portfolio still has a lot of Xcite with news just around the corner.

Xcite Energy(XEL) -  Xcite finished down 3p on Friday, but a gain of 25p on Wednesday meant that it finished the week at £3.82, a rise of 20p on the week. The rig signing deadline with British American Offshore for the Rowan Norway rig passed yesterday (this was the second extension) with no news. Given the company normally issue an RNS the day after a signing deadline, it is pretty much certain an RNS will be forthcoming on Monday. Wednesday's rise was partly related to a FT.com story that there was "vague talk of a takeover" (see previous post http://contrarianinvestoruk.blogspot.com/2011/02/xcite-energy-ftcom-quotes-vague-bid.html). As I stated earlier it was frustrating to have to close some spread bets on Friday, but there is still plenty there to benefit from upside from a good RNS. The key document, the CPR reserves report is expected anytime in the next month, and you never know, it might be sooner than we were all led to believe.

Rockhopper (RKH) - Unfortunately buys on Thursday and Friday were poorly timed with a subsequent 17% fall on Friday afternoon, but my previous post (http://contrarianinvestoruk.blogspot.com/2011/02/rockhopper-1410-3-disappoints-market.html) illustrates why I wasn't panicked into selling like many others on the drop.

ARM Holdings (ARM) - A short on chip designer, ARM holdings, was closed for a profit after the shares hit all time highs this week.

Bowleven (BLVN) - An update from the Sapele 1 well in Cameroon didn't do much to help the shares this week. They finished down 2.5% at £3.29. Several failures in the AIM oil sector this week (Rockhopper, Nautical, Encore) plus perhaps the changes at CMC holdings seems to have contributed to a lot of volatility. Bowleven remains a core holding for medium term gains particularly with a second rig being mobilised in February to accelerate appraisals.

Weatherly International (WTI) - The RNS from 8th February was good news. "mining activities have resumed at both the Otjihase and Matchless mines with ore being blasted and stockpiled awaiting commissioning of the concentrator. The commissioning of the concentrator is progressing well and the plant will resume normal operation in accordance with the programme. Weatherly expects to have sufficient quantities of concentrate to commence transport to Walvis Bay in March with the first revenues to be realised from concentrate sales shortly thereafter." This remains a very promising share with Copper prices at all time highs and production ramping up.

Sirius (SXX) and Angel (ANGM) - Nothing to report. Where is that gold shipment report Elias Jones?(Chief Exec. Angel) - what's all this talk you've been on holiday!!??

Rockhopper 14/10-3 disappoints market but fall seems overdone

After starting the week at 385p or so, its been a down hill run for Rockhopper (RKH) all this week, culminating in a 17% fall (58p) to 277p on news from the 14/10-3 North Falkland basin drill. A 28% fall from last week, on a well 8km from the previous Sea Lion discovery and the first of several wells intended to map the extent of the Sea Lion reservoir. As a reminder, RKH raised £206 million in mid October at 315p, so the current share price is now 12% below this institutional placing. In January, Goldman added Rockhopper to its conviction buy list and estimated that with Sea Lion alone at 200 million barrels, with no further discoveries, the shares would be worth 350p.

Today's announcement was disappointing but did not justify a drop to £2.77. No doubt many small investors had stop losses in place or simply panicked and sold on the news, despite the fact that the 14/10-3 is the first of several wells with 14/10-4 considered much more likely to have a good sized hydrocarbon reservoir. It was interesting that even with the 14/10-3 being 5 miles from Sea Lion, oil was discovered but not commercial on a standalone basis. But it is quite possible that this hydrocarbon find may be the edge of the Sea Lion reservoir and that it why additional analysis is needed before any conclusions can be reached. 14/10-3 was not a "duster", live oil was recovered, it was just too small.

Rockhopper looks very undervalued now on the basis that of the Ocean Guardian rig activity planned for the rest of 2011 it would be expected that oil additional to the 200-240 million barrels will be encountered, on the balance of probabilities. With £200 million in the bank and Sea Lion, I am surprised that this share has fallen quite so far on this news.  The positions I have been acquiring over the last couple of days are down, but from a fundamental not "share holder panic" point of view, I am confident that by holding we are likely to see a return over £3.50 in the not too distant future (possibly within weeks). A disappointing well result like 14/10-3 tests the investor when the "sheep investors" panic and sell out driving the price down to excessively cheap levels. This is the time a contrarian investor makes his or her money - as Buffett said "when others are fearful be greedy!". It is time now for clear heads, not panic and just a little patience for 14/10-4.

The rumours of a big strike were ultimately wrong, and the gradual fall in the share price before the announcement, shows that those in the market who are really in the know tend to dictate the direction of the price. Maybe rumours were just misinterpreted since oil was encountered, just not enough of it. This was not the case with the Sea Lion discovery, where the price fell heavily before the discovery , then sprung up like a coiled spring on positive news. But the Falkland oil companies seem to emanate leaks with great regularity.

RNS Number : 1130B

Rockhopper Exploration plc

11 February 2011

For immediate release: 11 February 2011

Rockhopper Exploration plc

("Rockhopper" or the "Company")

Results of 14/10-3 Exploration Well

Highlights:

·      64m good quality gross reservoir encountered

·      7.3m net pay with low oil saturation

·      Live oil recovered to surface from MDT

·      Well, on a stand-alone basis, considered to be uncommercial

·      Results considered technically encouraging for reservoir development within Sea Lion

Rockhopper Exploration plc (AIM: RKH), the North Falkland Basin oil and gas exploration company, announces that exploration well 14/10-3 located in licence PL032, 8 km to the north west of the Sea Lion oil discovery was drilled to a total depth (TD) of 2,830m. The well was designed to explore the northern lobe of the sea lion fan feature and is the first well to be drilled in that area.

The well encountered good quality reservoir from 2,425m to 2,535m in a sequence of 4 main sandstone intervals. Within these 4 main sand intervals 64m of gross reservoir sand was encountered with net sand of 54m (a net to gross ratio of 84%).

Wireline log interpretation was carried out using Rw taken directly from downhole MDT water samples from each sand. Logs indicate that three of the sands encountered (Sands 1, 2 and 4) have high water saturations with hydrocarbon shows during drilling and in cores. Logging indicates that one sand (Sand 3) has net pay of 7.3m using a cut off of 70% Sw.

The reservoir is located beneath a thick regional shale seal. The sands which came in, as prognosed by the Company, are of good quality with average porosity of 18-20% and peaks of up to 25%. 

	Depth	Average Porosity	MDT Sample	Sw
Sand 1	2,425m - 2,446m	18%	Water	>90%
Sand 2	2,452m - 2,469m	20%	Water	>90%
Sand 3	2,473m - 2,481m	18%	20% live oil	63%
Sand 4	2,517m - 2,535m	20%	Water	>90%

The Company believes that Sands 1, 2 and 3 are likely to be related to part of the main Sea Lion feature, while Sand 4 could be related to the S2 feature.

Oil and gas shows were detected throughout the reservoir intervals. Four conventional cores were cut through the reservoir totalling 101 metres and both the bleeding of live oil and oil staining were observed throughout. However, MDT samples on Sands 1, 2 and 4 returned water.

A number of live oil samples were recovered from Sand 3 using a standard MDT tool, samples were approximately 20% live oil and are indicated to be medium gravity.

The Company then performed a mini Drill Stem Test ("DST") on Sand 3 by using a dual packer MDT tool downhole. During the test, water was produced into the well. Further technical work is required to understand why the mini DST produced water while the standard MDT recovered 20% live oil from the same sand interval.

MDT pressure readings taken over Sand 3 indicate that it appears to be lying on the same oil pressure gradient as the main Sea Lion fan in well 14/10-2, indicating the potential for good lateral communication. Further wells and technical work will be required to determine if this is the case.

Log interpretation has proven to be complex and the Company believes that further work is required to fully understand what has been encountered in the well and its implications.

The Company believes that the lowest sand (Sand 4) could form the downdip, distal part of the S2 feature and will now undertake further analysis to determine the likelihood of oil being present updip in the S2 lobe. Despite the high levels of water saturation in Sand 4, oil staining was observed in the core.

Further technical work will also now be undertaken to determine the likelihood of oil being present elsewhere in the northern Sea Lion lobe and the likely contribution, if any, of this well to any commercial oil development on the Sea Lion feature.

As the regional overlying seal appears to be intact and effective at the well location, reservoir quality is good, oil shows and moveable live oil are present, the main technical risk associated with the northern Sea Lion lobe remains the effectiveness of the seal at the location of the feeder channel and the risk of effective charge from the south if there is discontinuity within the reservoir.

Following completion of all logging operations the Company currently intends to plug and abandon the well in line with the originally intended drilling programme.

The Ocean Guardian drilling unit will then drill appraisal well 14/10-4, which is located 2.3 km north west of the 14-10-2 Sea Lion discovery well.  A further announcement will be issued on the spudding of 14/10-4.

Sam Moody, Chief Executive of Rockhopper, commented:

"This well, which was the first to be drilled in this area, 8 km to the north west of the Sea Lion discovery, was encouraging. The results of the well are complex and will take some time for us to interpret fully. The quality sands encountered confirm our understanding of the depositional system within the basin. We are particularly pleased to have encountered a thick sequence of reservoir as we prognosed and obtained a number of samples of live oil. The results are indicative of significant upside potential elsewhere across the Sea Lion and S2 features.

This well is the first of a number we plan to drill during 2011, focusing largely on delineating the extent and size of the Sea Lion discovery, as well as testing additional exploration upside."

NOTES

MDT: Modular Formation Dynamics Tester

Rw = Resistivity of formation water

Sw = water saturation