Why is FAR going down? 1. WTI oil is at a major support of...

Why is FAR going down?

1. WTI oil is at a major support of $41.84 - if we break this support we may head to $32. Possible but unlikely.
2. S&P 500 is in consolidation before a potential move downwards after close to 7 years of growth.
3. China devaluing Yuan affecting commodities and oil.

FAR is a good buy at 5-5.5 cent pending further downwards movement. I hold and wait to buy around 5-5.5c.





Hello All and welcome to another fun-filled week.

Found a nice quote in the Fairfax press at the weekend: "Patience is bitter but its fruit is sweet" (Rousseau).

With the share price languishing at 6.8 cents, oil at a six-year low and even HC activity in the doldrums with two months until appraisal starts, Rousseau's words are worth heeding. I thought it worthwhile, too, to review FAR's current position. This is even more important given the recent influx of new posters who, whilst enthusiastic - hello Mr Hustler! - might not be aware of the full back story.

The mood here of late has ranged from extreme pessimism to wild optimism but in the main has been moribund. We have collectively become like Starbuck, endlessly sharpening our harpoon while the mighty white whale remains tantalisingly out of sight below. Let us, then, put down our weapon for a moment, pick up a book and flick back three months to the FAR AGM for a picture of just what our quarry looks like. I include my own commentary and invite your thoughts about my interpretations.

Let's start. The shorter term - 12 months, a veritable blink in oil terms - has of course become all about SNE. What was it Cath said told the meeting again?

We found 100 metres of gas overlying 100 metres of oil, then oil/water contact. Having already doubled our pre-drill resource, we thought what the heck, there might be another trap and drilled on ... to no avail. "SNE was very well defined seismically, so we could do quick volumetrics - the oil was the same API so we knew we had a single column." Net pay, as we know, was 19m of gas and 36m oil, but then things got more interesting. "There are a number of thinner sands we believe can contribute significantly to the net pay (and hence the 2C). The work is complex and ongoing. By the time we start drilling we expect to be looking at a much bigger field than the 330 million barrels booked to date, so watch this space."

Did you get that? By the time we start drilling. While we sit here anguishing about the SP, the resource is growing as the JV sweats over already collected data. I must admit I have been assuming no news about a possible resource upgrade until drill results around Xmas/New Year. Is there, though, a possibility that an upgraded potential resource number might be issued pre-spud?

Now, what about the exploratory well. At the time of the AGM this decision had not been made. Sirius and Soleil, Cath said, both looked similar to SNE and were less risky prospects "in some ways" than Bellatrix, which overlies SNE and therefore has the biggest potential upside.

Although not officially announced - we are relying on an interview with The Chef - it seems the JV has settled on Bellatrix as the third (exploratory) well. Whilst FAR accords it a high (50%) COS, it nonetheless seems we are plumping for the highest risk/highest reward option in drilling Bellatrix. I suspect they have reasoned thus: We are sure of good results from the two appraisal wells - which should boost the SPs of FAR and Cairn (maybe even COP) - so let's roll the dice on a bumper result from Bellatrix because failure will not be as severely punished by the market.

So much for SNE: What about FAN? It really has become the forgotten child, but have a look at what was said.

FAN targeted two fans. Most of the oil was found in the lower, Beer (now the Fan Field). The 500-metre oil interval, Cath described as "extremely exciting". "We had wondered whether the source rock would be prolific enough to fill the large prospects we were targeting and a 500-metre interval showed us a huge amount was being generated". But then it got really interesting. "We declared a 29-metre pay, but 29 metres out of 500 was not a fair assessment because the net pay came from several columns, indicating a huge amount of oil. It significantly de-risked the shelf. The JV is not yet agreed on counting resource numbers at FAN." There was "good seismic evidence" suggesting the yet-to-be-found oil/water contact was "a fair bit deeper" than the depth already drilled. This seismic is now being reprocessed in the light of having two control wells. FAN will not be appraised until well into 2016 at least.

FAN, it seems, is temporarily out of the picture but very much on FAR's mind. The seismic is now being reprocessed. Again, while the market takes a breather and the shorters weave their black magic, the JV is chipping away quietly growing the prospective resource. Given the focus on SNE, I think it unlikely the upgraded prospects at FAN will be announced any time soon, but it is tantalising to know FAN has the potential to significantly boost FAR's valuation even before we think about appraising it.

So just what are we sitting on? Let's be frank: No one knows for sure, but you can bet the JV knows a hell of a lot more than it's letting on. Chairman Nic said as much at the AGM.

"Once the SNE appraisals are drilled, the eyes of the world will be on us. There is currently not enough information out there to enable others to understand what we have."

Officially, the JV has announced more than two billion barrels in prospect, comprising SNE, FAN and the upper shelf prospects not yet drilled. Their rhetoric, though, suggests they expect to exceed even that two billion number.

Cath: "We're looking at a fantastic hydrocarbon province here. All the joint venture partners agree we're only scratching the surface of what could be a wonderful hydrocarbon province." And again: "The next few years are about revealing more of the elephant - or elephants, I should say, that we think are there". Or Chairman Nic: "We have a tiger by the tail. We are very confident they (the discoveries) are probably going to get larger."

Exciting stuff, to be sure, which makes the current period of inactivity even harder to bear. Inactivity? I don't think so. Here's what we know is currently happening behind the scenes:

* COP has skewered just about its entire exploration/appraisal budget but has quarantined and committed to Senegal.
* COP compiled a crack team of 30 that has been working in Senegal for the past four or five months.
* The SNE and FAN seismic is being reprocessed.
* The drill data from both wells is being reprocessed with particular emphasis on those thin sands that seemingly have huge potential.
* The JV lodged its plans with the Government and we are now told by email the formal approval is not required - we are full steam ahead.
* New seismic is being shot on the upper shelf this quarter.
* Guinea Bisseau - remember that! - has been retargeted for SNE lookalikes.
* COP has pulled the Athena out of Morocco and it will now be recommissioned to drill Senegal. Expect contract details soon.
* FAR is pretty well clearing the Kenya/Australia decks to concentrate fully on Senegal.
* There is surely a funding plan being devised. It seems we are covered for at least two wells but our Chairman warned the AGM we could not afford to be cash-shy during the critical phase ahead. One thing we do know about the fund-raising, it will not include a sell-down of our 15% share of Senegal.

Nothing happening? More like that well-known duck; nothing to see above water but furious paddling below.

It must be galling for FAR to watch its SP driven down into six-cent territory, but that is surely not for much longer even in this dreadful oil environment. It now seems we will get the rig contract details soon, followed by a pre-spud announcement (which might, just might include a resource upgrade?), then onwards and downwards into the drill program itself. One would hope - expect? - the SP by Christmas to be double or more its current 'value'. We might even see more action, as foreshadowed by Nic at the AGM:

"By then end of the year we expect knocks on our door. We've already had some telling us 'we can help you with this or that'. I'd say by the end of the year we will be getting some serious offers. If we get a serious offer we will look at that. If an offer makes sense, then we'd talk to our shareholders about that. Our job now is to plan for success and assume we are going all the way to production."

One thing is certain: The next six months will be more interesting than the past three. GLTAH.

OOO