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FAR Ltd: THE INVESTMENT CASE
INVESTMENT OVERVIEW

FAR Ltd outlines value drivers for next 12 months

The company expects its oil and gas exploration efforts will add to shareholder value.
FAR Ltd outlines value drivers for next 12 months
INVESTMENT OVERVIEW: FAR The Big Picture
Exploration is FAR's core business

FAR Ltd (ASX:FAR) has a busy West African schedule in the next few weeks as it expects to start drilling the Samo project in The Gambia, which it holds with Malaysian state oil company PETRONAS.

In addition to this, its Senegal JV intends to submit an exploitation plan to the government of Senegal for the development of the world-class SNE field.

FAR projects

FAR has signficant holdings in Africa.

Melbourne-based FAR’s drilling efforts in The Gambia are fully carried up to US$45 million by PETRONAS, which farmed into blocks A2 and A5 in the country earlier this year and now holds 40% of the project to FAR’s 40% stake.

FAR will drill the Samo-1 well, in block A2, with the prospect lying to the south and along trend from the giant SNE oil field in Senegal.

Rig reactivation for the October kick-off has already begun and the shore base for drillers is in Dakar, Senegal.

The Australian company has produced nine successful appraisal wells and two exploration wells from this trend for a 100% success rate.

FAR managing director Cath Norman told Proactive Investors: “In Senegal we will see the exploitation plan submitted to the government towards the end of September, with government approval expected at the end of the year, but it is full steam ahead for our value-adding catalyst which is progressing the Samo-1 well in The Gambia.

“Our aim is to continue building on our enviable position within the Mauritania-Senegal-Guinea-Bissau-Conakry basin, (taking) an offshore focus as we follow the paleo-shelf-edge trend in the basin.

“We have selected our final well location and we are targeting two reservoir intervals.”

READ: FAR Ltd granted government approval for Petronas farm-out in blocks A2 and A5, The Gambia

The first of these, an upper reservoir interval had contained liquid-rich gas at SNE.

The second, a lower reservoir interval was oil-bearing at SNE.

Norman said: “The two target reservoir intervals are assessed to have a combined prospective resource of 825 million barrels of oil — a best estimate, gross, recoverable (figure).

“Auditors RISC have given this well a 50% chance of geological success which is very high for an exploration well but this is because we have drilled the same reservoirs in the Samo prospect nine times to the north in Senegal.”

FAR has also mapped other prospects in A2 block — Samo, Soloo and Bambo — with an additional 668 million barrel best estimate of gross recoverable barrels.

Soloo and Bambo are drilling targets the company will focus on after Samo.

READ: FAR Ltd selects location for the Samo-1 OIL and gas exploration well offshore The Gambia

FAR made the world’s largest oil discovery in 2014 at SNE in its joint venture and is advancing the project and progressing towards development.

The JV has invested US$950 million in the past 4 years, after FAR’s partners backed a carry-through farm-in drilling program to the tune of US$200 million back in 2014.

First oil from the SNE field is expected in 2022 and first gas in 2024.

The partners plan to submit an exploitation plan based on the commerciality and development concepts of FAR’s SNE Evaluation Report, submitted in July, by the end of this quarter.

Their break-even oil price is US$35 a barrel, with phase 1 production set at 100,000 barrels a year.

READ: FAR prepares to drill for oil offshore The Gambia, backed by oil major PETRONAS

Norman said: “We are expecting to submit this exploitation plan to the government at the end of this month for government approval by year end before heading into final investment decision in the latter half of 2019.”

In addition to FAR’s high-profile JV and farm-in partners, the company also has the support of Meridian Capital International Fund which held a 14.55% stake at the time of its last notice in May.

FIL Limited ceased being a substantial holder in March after taking a 5.26% stake in May last year.

Trends continue across national borders.

Market values barrels

Current valuations of FAR put its value at $5-6 per 2C contingent barrel of oil.

The valuation is based on the net value of FAR’s share of SNE 2C contingent resources of 96 million barrels, or 126 million barrels net to FAR if an extra 30 million barrels is added to take into account for the additional discoveries in Senegal being FAN, FAN-South and SNE-North, announced in March.

The company told Proactive Investors: “Should our Samo-1 well be successful in discovering 825 million barrels of 2C contingent resources, this will add 330 million barrels of 2C contingent resources to FAR’s inventory and we would expect the market to reflect this increase in net barrels to FAR in our share price.”

Exploration costs come down

FAR acknowledges exploration adds the most value to FAR for its shareholders and views its current drilling program as getting on with its “core business”.

Norman said: “Following the huge success in Senegal, FAR’s focus for exploration is on the MSGBC (Mauritania-Senegal-Guinea-Bissau-Conakry) basin in West Africa where we are now the largest acreage holder with 8 blocks.”

The cost of exploration in the basin has come down.

Norman said: “We are seeing the lowest rig rates we’ve seen for a number of years.

“In fact we had a five-well program last year in Senegal where we were drilling at US$190,000 a day with an extremely efficient drillship … and we’ve secured this rig for exactly the same rate for our one-well program at Samo — so it’s a perfect time to be exploring.”

Governments support investors

FAR views the two nations it operates in, Senegal and The Gambia as supportive environments.

Norman said: “We have a very good relationship with the Government of Senegal and also in The Gambia where we are the only offshore operator and about to drill their first well for 40 years.

“Both countries recognise that they need foreign investment in oil exploration and development whilst they build their own capabilities in country.

“FAR looks to continue to support this capacity building in both countries over the coming years.”

FAR is the longest standing oil company offshore of Senegal where the company has been since 2006.

The company is viewed as a catalyst which opened up the basin and allowed it to become the hotspot it is today.

Traditional energy sources part of the mix

FAR acknowledges renewable energy has entered the energy mix on a global scale but believes increased energy demand will ensure demand for oil and gas will continue.

Norman said: “It’s great to see renewable energies making their way into the global energy mix. However, we are living in an era of growing global population that requires ever more energy.

“For the foreseeable future the forecast demand for oil and gas is reflecting a growth in demand net of renewable energy contributions.”

The company banked $19 million from PETRONAS recently, helping improve its current cash position to what is a little less than $50 million today.

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