CNE, page-13

Hi CV also @farjock (and by way of comment not argument )

Interested in your remarks with respect to sentiment and also those of Farjock with respect to the oil price not being a factor in FAR’s share price because we are not yet close to production and don’t have a profit and loss account.

One of my basic theses, and I have stated this before, is that though we are not a producer, our entire share price is actually built on the possession of a certain amount of a commodity and that it therefore makes sense that the share price will vary with the value (or perceived forward value) of that commodity, so no I don’t agree with that.

On the other hand, I suppose, if one feels that the value of FAR shares (resource quantities aside) should only vary according to sentiment that’s fine, because surely sentiment will vary according to the oil price so either way the price will be affected, it’s just another way of saying the same thing.

In my full spreadsheets I do allow a 15% volatility range for transient enthusiasm so l guess I’m allowing for a bit for both oil price variation and excess sentiment overall. Sorry this volatility allowance has gone missing from the summary tables, I’ll correct that next time Smile

With respect to my tables being almost factual, I have tried to base everything on what has been reported to the market or presented to us in company presentations rather than on speculation of what might be.

However, the graded oil value tables do have a certain speculative attribute though as, although they are based on and referenced to Cairn’s NPV values at FID, they contain extrapolations for different oil prices which are the result of assumptions of cost reductions and their effect on project value at various oil prices that rely on my own guess work if you like - though I have internally created rough project value tables to make them a bit less of a guess, I don’t have all the necessary information to hand.

Back to the FAR share price again its behaviour recently. This has indeed been a little bit flatter than predicted and one of the reasons that the share price has not responded much upwards with the recent rises in the oil price could be that it never fell as much as it should have when the oil price in late January went down. Which leads me to speculate that the price indeed does seem to have some sort of “control” placed over it, with the difference being that the controller is active in both directions rather than just continually “capping” the price as favoured on HC.

Now the other day something also caught my eye when reviewing the Feb presentation that I hadn’t noticed before (and on checking back it’s also present in the October cash raising one) and that is that an assertion that Cairn’s NPV at FID or US$10 a barrel at US$70 can be maintained at US$50 a barrel by applying a 30% Capex reduction. This rather surprised me as Cairn’s value for US$50 oil was only US$4.50 and that already allowed for a 20% reduction in costs.

In my tables I worked out an increased from US$4.50 to $5.20 for a cost reduction change of 20% to 30%. So if FAR are correct this would throw all my oil value tables into complete disarray and I nearly came to throwing the whole lot in the bin. Then on reflection, I find the application of the revised NPV would result in the current share values projections almost doubling. That wouldn’t fit the current market value forecasts at all, so I’ve decided for the moment to stick with things just as they are.

pj