huntley report 3.09.08.

Roc Oil Company Limited (ROC) Closing Share Price: 1.190
Update: No Particular 1H08 Surprises

Recommendation: Buy Change: Unchanged

We convert ROC's 1H08 earnings from US dollars to Australian dollars based on period average exchange rates. On that basis, the adjusted net loss of $17.3 improves marginally on the pcp loss of $19.6m. Our forecast was for a 1H08 loss of $9.8m. Higher than expected tax was the key difference. The headline net loss worsened from $8.8m to $130.1m including an unrealised $128.9m derivative expense on marking to market unfavourable oil hedges. ROC has 2.6mmbls hedged at US$70.10/bbl (just over 10% of our expected output hedged for the next 3 years). This was partially offset by a $12.9m post tax reversal of a prior year impairment charge for Zhao Dong and a $3.2m gain for deferred petroleum resources rent tax. All are non cash. At the important EBITDAX level - earnings before interest, tax, depreciation, amortisation and exploration, profit rose 61% to $133.8m, a tad less than anticipated.

Overall the result was near enough to expectations and our valuation and earnings forecasts are not meaningfully altered. Our Buy recommendation is retained. ROC presses ahead with its takeover offers for Anzon Energy Limited (AEL) and AEL's 52% owned ASX listed subsidiary, Anzon Energy Australia (AZA). The share price is showing signs of bottoming so perhaps the bid, though unpopular, is gaining acceptance. Some production issues which hindered recent performance will resolve in the near term, potentially supporting a price recovery. We remind subscribers that ROC has high business and price risk attributes. Risk averse investors should stick with the likes of Woodside.