Eureka Report Article

By Tim Treadgold 31/08/16

If the oil price had not collapsed two years ago Melbourne-based FAR Ltd would be a much better-known business today with far greater investor support.

It’s not, and that’s the luck of the commodities game, but two events are starting to kindle interest in FAR, which is a minority shareholder in one of the world’s best oil discoveries of the past few years.

What’s changing for FAR are the early signs of an inevitable oil price recovery, which will follow the drought of investment in exploration and development of oil and gas projects. There's also an interesting corporate “game” developing around the SNE oilfield off the coast of the African country of Senegal, in which FAR has a 15 per cent stake.

The oil price will move at its own pace, but could get a boost in late September if a meeting of major oil-producing countries agree on some form of market support operation, such as trimming output.

Of far more interest are the corporate events swirling around the SNE field, which has Britain’s Cairn Energy and ConocoPhillips of the US as the major shareholders – but with Conoco proposing to sell its 35 per cent to Australia’s Woodside Petroleum.

The deal between Conoco and Woodside was, until a few days ago, seen as a simple transfer of ownership at a price of $US430 million, but that was before FAR objected with a claim that its right of first refusal had to be considered and it had an option to match Woodside’s price.

Given that FAR is capitalised at $330m and Woodside at $24 billion, not too many people took FAR’s stance seriously. But that could be a mistake because, while FAR might not have the spare cash to match Woodside’s deal with Conoco, it could easily find friends with deep pockets who could.

What FAR appears to be doing is dealing itself into the game by arguing that the clock has not even started on the bidding game, serving Conoco with notice that it has failed to comply with the terms of the SNE joint venture; an impressive position to adopt given that Conoco is valued on the New York Stock Exchange at $US52bn ($70bn).

Having dealt itself into a game being played by oilfield giants, the minnow FAR now appears to have three options. It can quietly accept the inevitable of Woodside replacing Conoco, or it can bring in a funding partner to beat Woodside to the SNE prize, or it can negotiate a high price for its 15 per cent of the SNE field and exit the game with a fistful of dollars.

On the market, FAR is trading at 7.4c, close to its 12-month low of 7c.