Is rising Rockhopper Exploration a hidden gem in the UK stock market?

Testing the Rockhopper (LSE:RKH) is the best performing UK stock over the past 30 days and 12 months. The hydrocarbons explorer has seen its shares rise 50% since mid-November and the stock has nearly doubled in value since the start of the year.

Personally, I like momentum stocks. So, is Rockhopper Exploration a hidden gem in the UK stock market?

Why does the stock go up?

Shares of Rockhopper Exploration are rising, fueled by a series of exciting developments at its Sea Lion oil field project. Working with Israel’s Navitas Petroleum, Rockhopper has reported significant progress 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 peak production is reached. Rockhopper’s review also noted a 16% increase in available oil resources, now estimated at 917m barrels, improving the economics of the project despite an increase in capital expenditure costs of up to $1.4bn.

In October, the company also received a significant extension of its oil production licenses in both the North and South Falkland regions until December 2026, providing continued exploration and development rights.

With first oil from Sea Lion expected in Q4 2027, the expansion not only secures the company’s future in the region but also strengthens investor confidence, and as a result, the share price.

It’s fun, but be prepared to wait

I actually wrote my PhD about the first oil expedition in a hydrocarbon-rich country. And one important lesson is that if you consider that drug discovery is a slow process, progressing from hydrocarbon discovery to first oil can take even longer.

Therefore, we should not be fooled into thinking that in a few years Rockhopper will be a profitable oil producer with good cash flow. The company is still in the development phase, partnering, acquiring licenses, and expanding its oil well estimates.

And while Rockhopper predicts first production in 2027, there may be speed bumps. On the other hand, some reports have suggested that the Falkland government will clash with the UK government following the ban on new oil and gas licences.

However, it is important to note that London does not have the authority to stop the Falklands from exploiting resources on its territory. These resources can also have a significant impact on local wealth.

Is it worth the investment?

However, as I said, I like companies with strong momentum, but I fear that we may be short on predictable catalysts at the moment. 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 small, and significant production from these assets is still many years out.

We must also remember that oil prices are volatile, and this will have a significant impact on the profitability of Rockhopper’s assets. If oil prices stay high or rise, it could mean that Rockhopper is undervalued, especially if you have a bullish view 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 invest based on this assumption alone.