| 0 |
"The discovery of a 500 metre interval of oil in the first well, FAN-1, proved there are very large volumes of oil being produced and, if our migration model is correct, then there could be enough oil being generated to fill all of our prospects. The presence of oil in SNE-1 went a long way to proving this migration model so we are one step closer to unlocking the 3.5 billion barrels." |
| 1 |
"With respect to the two discoveries, they appear to be of a scale that will support a standalone development on each. To have made two potentially commercially viable discoveries from two frontier wells is significant in itself and a very rare occurrence in our industry. For FAR shareholders this will mean the company has two standalone developments, both of which appear to offer significant value creation potential." |
| 2 |
"FAR’s discovery in the SNE-1 well is ranked number 1 by size on IHS’s list of top ten global discoveries for 2014 (IHS is an industry leader in the analysis of global oil and gas data)." |
| 3 |
"Q: Is the SNE-1 discovery more meaningful to FAR than the FAN-1 discovery? A: From the information we have obtained so far - the answer is potentially yes. The reservoir in SNE-1 is excellent and the structure is very well defined and we expect the path to project sanction and a commercial development is relatively clear and straight forward for SNE-1. Even on highly conservative recoverable oil volume estimates SNE-1 will be an attractive project capable of generating substantial value for shareholders. If there are 330mmbbls of recoverable oil* asestimated by the Operator this will clearly be a commercial project. The value of each barrel of oil will be relatively high due to the moderate capital costs and the attractive fiscal terms that FAR has secured in Senegal." |
| 4 |
"The FAN-1 discovery is a relatively more complex geological story at present. The fact that we have assessed to date 29 metres of net pay over a very large area resulted in the Operator announcing an estimate of 950 million barrels of oil in place on a P50 basis. As a joint venture, we are yet to finalise our assessment of the net reservoir, but if we apply a 30% recovery factor to this oil in place estimate then we have another large discovery in FAN-1. What is particularly exciting about FAN-1 is that we did not reach the oil-water contact in the well. This means that the size of the potential pool of oil could be much larger than we have estimated and significantly larger than the SNE-1 discovery. We won’t know how big the FAN-1 discovery is until we have completed our analysis of the FAN-1 well data and drilled at least one appraisal well. It would be fair to say that FAN-1 is more complex to understand given there is evidence that a number of hydrocarbon columns exist within the well. This is evidenced by the range of pressure regimes and the different oils sampled in the FAN-1 well (ranging from 28 – 42 degrees API)." |
| 5 |
Q: What about the remaining potential of Senegal? A: As stated previously, our ultimate aim is to realise the multi-billion barrel potential of the basin. Our team will be reviewing the prospective resources inventory from the undrilled prospects and, in light of the discoveries, re-assessing the volumes and geological chance of success for each prospect. We expect we will release a revised assessment of our prospective resource inventory in the first quarter 2015.* Prior to drilling, we gave the fan play a one in six chance of success and the shelf play a one in four chance of success, so the risked numbers will change for these plays as we incorporate the success and report contingent resources for the discoveries and the prospective resources for the inventory of prospects yet to be drilled. We expect these resources will increase as we now understand the plays in much greater detail. There are three main, broad play types offshore Senegal: the fans, the shelf edge and the buried hills. Both the fan and shelf edge plays have been tested through drilling and have been proven to be successful and we would hope to drill the buried hills play in the future. |
| 6 |
I have no doubt at all that FAR and its partners have discovered a new oil province, which will exceed other African fields. FAN 1 is more than the sum of its parts. It was carefully selected to give the partners an insight into 4 geological structures, and the interim results suggest that each structure will contain commercial oil. Volumetrically, the northern fan is the smallest of these structures, from which I infer that at least 6 billion barrels of oil has been discovered. There is a good chance that at least as much again will be discovered upslope. Most will be recoverable with gas injection, which these days is a common way of squeezing the rocks. For FAN 1, the unanswered question is whether the reservoir seals are sufficient to enable CO2 storage, which may make this a carbon neutral oil field. That may only be answered after injection with colourised gas to detect sea floor leaks. The World Bank, which has hitherto declined to fund carbon, may be prepared to do so because of the demonstration effect - it recently invested in CAS, a Brazilian gold and iron ore miner listed on the ASX (we hold too), because of its positive social and environmental actions. |
| 7 |
As Lupalupa was twice the size of the prospective estimate, each of the hills should be doubled, unless there is something about the matching of geology with seismic that increases or decreases that estimate. The hills structure is also ideal for CO2 storage, and subsidies will be available for the initial development work on the reservoir for this reason. The Fans are more complex - hence the somewhat garbled and inconclusive announcement, and the weeks of testing. They should have been worked out by now, except I suppose that the people doing the work have been diverted. In any event, I would expect an announcement soon. However, I think that the whole game has changed. The effect of SNE-1 will be to change everyone's perception of the order of development (the shelf first instead of last), the cost of development (the shelf will be about two-thirds of the cost of the fans) and the timing (if SNE-1 becomes a production well, then production can begin in 2016 instead of 2018 if a platform can be found or built by then). It will be easier to tie the other hills into production on the shelf, whereas my perception of the fans was that it would be more difficult at that depth to secure the platform over the central fan to lift oil from the southern and northern fans, at least without several seabed compressors (not impossible but complex). |
| 8 |
The simplest example is to compare FAR with Santos which reports its reserves and resources in the barrel of oil equivalent metric BOE. I think it has over 1B barrels in reserves and the same again in resources. Leaving aside the complication of the probabilistic estimates, the market assigns it a value of $13 B. Of course, it has cash flow, which makes the valuation more robust (but misleading on cashflow alone, as the more cash the less reserve, without expenses of exploration). My view is that FAR will eventually exceed Santos, but it is unlikely to establish reserves until production and cannot claim resources without drilling evidence. |
| 9 |
My task now as lead shareholder is to find some funds for FAR so it can support the appraisal wells and platform costs, without too much dilution. |
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