MMC transcript of FAR presentation

Almost gave up on this after a few paragraphs since it was a much slower process that I expected, but here is a transcript of CN's presentation. Plenty of gems in there.!



It gives me great pleasure to be here this evening, the last time I presented at the cutting edge series was almost two years ago, minus a couple of months, and the oil price at the time was $120 a barrel, our market cap was nearly $90 million Aussie dollars, and I think it is a bit ironic that as we stand here today the oil price has gone down by about a factor of four and our companies market cap has gone up by about a factor of four, and some I’m happy to say. There’s nothing like having the world’s largest oil discovery for 2014 in your back pocket to help support the share price and the market cap of a company, and I’d like to talk to you a little bit about that today.

FAR has been in Senegal for 10 years this year, and in 2014, following farming out to Conoco Phillips and Cairn Energy of the UK, we drilled two wells offshore Senegal, they were the first two wells to be drilled for oil exploration for about 40 years, and the first 2 deep-water exploration wells to be drilled ever off Senegal. We had 2 major basin-opening discoveries, the first of which was in a deep-water environment in a fan-type play, and the second of which was on the shelf offshore Senegal. The name of that discovery is SNE, Shelf North-East – we are not very imaginative with our field names. So you’ll hear me talking about the SNE field, and it’s the one that was awarded the mantle of the world’s largest oil discovery for 2014, and I must point out that as we stand here today that oil field hasn’t been topped – it still stands as the largest field since then, to be discovered.

As a result of making discoveries, our company is now the 5^th largest pure E&P oil company in the ASX, and we were accepted into the ASX300 energy index about this time last year. I think, under normal circumstances we would probably be in the ASX200 energy index by now, but as we all know with share prices rocketing downwards in the oil industry, our index has shrunk and hence we haven’t been invited in, but I’m sure it’s only a matter of time before we do, and a little bit more success of course.

We have a very experienced team although we are a small Aussie company compared to our partners in the Senegal JV, our exploration team actually sighted the two wells where we made our discoveries offshore Senegal back in 2014. We have a terrific team, and Reg Nelson, who’s somewhat a very well-known face in the oil industry in Australia, joined our board last year, and we are very pleased to have him.
6:08
Just to show you a slide showing FAR’s relative performance over the last 14 months, this is from the 1-Jan-2015, you can see that we’ve been, especially in the last couple of months, way outperformed the ASX200 energy index, and if anyone was in any doubt as to why most of the oil companies are shrinking in size and share price over the past year, it’s completely related to oil price. The green line here is the Brent oil price and the blue being the ASX 200 energy index. Even if you’re not an oil producer, and FAR is not an oil producer, we’re not immune to being pulled down by market sentiment due to the low oil price.
6:53
So I thought being at the Melbourne Mining Club it’d be really nice to show you how big the world’s largest oil field is, for 2014, over the map of Melbourne, and here it is, you might be able to spot where you live here. The red area shows you the gas cap that sits over the top of our oil leg which is shown in green, and to date, and our field is still growing as we drill appraisal wells over it, to date it’s sitting at about 330 square kms, so it’s very large.

So let me tell you a bit about Senegal, Senegal is the Western most country in Africa, and Dakar the capital is the western most tip of Africa. As I said earlier, FAR’s been there for 10 years and up until 2013 FAR had 90% of the production share and contract area you can see in red here on the screen, with the government of Senegal having the remaining 10. We farmed out to COP and Cairn for a deal that saw us get carried through the next almost $US200 million of expenditure, and that got us through our first 2 wells which were our discovery wells offshore Senegal, and the rest is really history. Today FAR has 15% of the project following the farm-outs, our operator of the JV is Cairn Energy, who are London listed, and Conoco Phillips don’t need any introduction, they are 35%, and the government of Senegal retain their 10% interest.

I think it’s worth pointing out that since we’ve made our discoveries there’s been a lot of activity and in fact you’d call this a bit of a regional hotspot around Africa at the moment. Cosmos, an American company, together with Chevron, drilled a very large gas complex here, they’ve put 3 wells into it and it looks like being about 30 TCF of gas sitting in that complex, and they’re indeed drilling a fourth well down in their Senegalese block in here, towards the end of this year. As some of you may have seen that Woodside farmed into a block that sits to the South of us, in here, about a month ago, and there’s lots of activity going on in and around us, in Senegal. We have some acreage in the country to the South, Guinea-Bissau that you can also see in orange, and we think we see an extension of the play that holds our SNE oil field extending down to the South.
9:31
In our acreage we’ve got a considerable amount of 3D seismic coverage, and the existing seismic that we have processed sits in here. We’ve recently acquired another big swath of 3D shown in the blue area, and all of our prospects and leads that we have mapped to date all sit in our historical 3D seismic. Our prospects all form in 2 families really, those that sit up on the shelf, you can see the shelf edge here in the black dotted line, and there are a family of prospects here, and then we have a family of prospects out in the deep water that are mostly these deep, turbiditic fan-type structures.
10:09
So let’s take a look at an East-West cross-section, I’m not going to show you too much seismic. This is really geology 101 and very easy to understand. The land is over here, this is offshore in the deep water, we have what we call a paleo or an old shelf edge that sits here where this dotted line is, and we have our hydrocarbons sitting here cooking, in what we call a source kitchen, and as they cook and mature there is a lot of upward pressure, and the hydrocarbons migrate up-dip and get trapped in what we see as closures or potential traps going up-dip, so hydrocarbons are migrating up-dip, getting stuck in these what we call fans, migrating further up-dip getting trapped on the shelf-edge structure, and then, something that we’re about to test, and we have just spudded our well we announced today, there is a well that is going to be drilled through this play that sits further back from the shelf edge called the buried hills.
11:17
So back in October 2014 we announced that we had drilled our first discovery well which was the FAN-1 well that was through the deep-water fans and it was drilling into a stacked fan play. What was really exciting about this well is that for the first deep-water well ever to be drilled off Senegal, we drilled through a 500m oil interval, and that meant through 500m we saw oil in the rocks the whole way through, which is absolutely incredible, and we didn’t see any oil-water contact and what that tells us is that out where we drilled fan there is the potential for there to be a much thicker oil system because we didn’t see where the water actually came in contact with the oil, which tells us that if we drilled down here somewhere we may have seen a much thicker oil section. Of course that’s all really fantastic news and for the first well to be drilled in the basin, very exciting, and what it did do for us that was really important, is that it de-risked any of the traps that we had up-dip sitting on the shelf.
12:33
So the second well we drilled was our SNE discovery well, SNE-1, into the SNE field, we announced our results in 2014, and as I said it was the largest oil discovery for 2014, and it has over 300 square kms of footprint. Let’s look a little bit closer at the SNE discovery. So, our oilfield sits in here, the red line you can see marks the base of the gas, so it’s what we call our gas-oil contact, and the green line marks the base of the oil, so it’s what we call our oil-water contact because beneath that we have water in our rocks. When we drilled down we drilled through the gas leg, through the oil, and then into the water, and you can see that our field consists of a number of thick sand units which are our reservoirs or our primary units that are housing our oil, and they are intersecting our oil leg, and then we have a number of thinner reservoirs that sit above our primary reservoir, that are in the gas cap, and further down into the oil leg. We had 100m of gross oil column sitting in the oil, and of that we had about 36m of net oil in that column.

We declared some contingent resources in SNE because it was very exciting, and our 1C or 90% chance of their being this volume of oil in the reservoir was 150 mmbbls, our 2C or p50 if you like to think of it that was 330 mmbbls, and our upside, or our 3C volume was 670 mmbbls. I’d like to show you this slide because this is how we mapped our SNE field pre-drill, and post-drilling the SNE-1 discovery, this is how we map our field. It started off at about 150 square kms and now sits, as I said, much bigger than 300 square kms. A month or so ago we released an update to our contingent resources because we reprocessed all of our seismic, and got a new feel for how big the field is post-drilling the discovery well, and we’ve increased our contingent resources. On a 2C basis we are now looking at 468 mmbbls.
15:06
So, we started an appraisal program to evaluate the SNE discovery back in November last year, and it consists of 3 firm wells, 2 of which are true appraisal wells, SNE-2 and SNE-3, and the third one is a well called BEL-1 that we actually spudded today. They’ve all been drilled back-to-back so SNE-2 and SNE-3 have been completed, and BEL-1 is drilling through a prospect that sits above our oil field, again red is gas and green is oil, and it’s testing a completely undrilled play type so it’s pure exploration, up here in the top part of the well, and then we’ll be drilling deepening the well to see how our SNE field is performing on the Northern part of the flank.

So in SNE-2, again we drilled up-dip, so we drilled on the true crest of the structure, and we flow-tested. So when we are appraising our discoveries the main thing we’re trying to do is to see if we’ve got enough volumes to make our field commercially viable, and to get to that commerciality decision, or threshold, we need to have 3 key ingredients. We need to have volume, or the barrels of oil in the ground, we need to have what’s called the deliverability of those barrels, so how do they flow when the hole is opened up, and the third thing that we need is what we call connectivity of those units across the field. So we need to make sure that we’re not just drilling into a pocket of oil, and that that particular reservoir extends across a fair footprint across the field. That’s got huge implications for us when it comes down to looking at the cap-ex involved in the development. If you have got your field compartmentalised, or chopped up, it means that you have to drill a lot more development wells and your cap-ex goes up.

Now as a joint venture, when we flow-tested our first well which was SNE-2, our first appraisal well, we got almost twice the flows, in daily rates, that we were expecting pre-drill. So we achieved nearly 10,000 barrels a day, from 1 well, and our engineers are telling us that if we drilled a horizontal well into that reservoir we could get up to 30,000 barrels a day, which is outstanding and absolutely world-class type of reservoir we’re looking at here.  

We then headed South and drilled our second appraisal well that we’ve just completed and flow-tested, and you can see here that on SNE-2 we flow-tested our big, thick units at the base, and a couple of our shallower units. Our big, thick units are dropping into the water as we get further South, and we’re relying on our thinner units to be containing oil, to reach perhaps our 3C number. We get more confidence in saying we’ve got a billion barrels of oil rather than half a billion barrels of oil. And indeed we’ve flowed some of these units that sat in gas at SNE-2, and we’ve flowed them for oil at SNE-3. Again we got almost twice the flow rates that we were expecting, and again world class type reservoirs that we have in terms of their deliverability.

As a joint venture those 3 elements of volume, deliverability, and connectivity, we’re very confident we’ve got the volumes needed in our oil field, we’re much closer and almost there, in terms of deliverability in fact I’d say that we’re probably there, and the last question we need to answer now is whether we’ve got that connectivity across the field.

So a third well is going to be drilled into Bellatrix which is a prospect that sits above our field. It’s very exciting, because when we first drilled out SNE prospect there was what we call a seismic amplitude that conformed with structure. So we could see seismic amplitudes or bright spots that sat over our oil field. And indeed sitting over Bellatrix we can see a really bright amplitude response to our structure, which you can see in here marked in black. These really bright amplitudes often correlate with where you have gas, and indeed in the SNE field the bright amplitude when we drilled correlated 1 for 1 with our gas-to-oil contact. In Bellatrix, if this is behaving the same and this is our gas to oil contact, we can see room for 100m of oil leg sitting below that gas-to-oil contact. But again we’re back in the realms of frontier exploration into a reservoir we’ve never drilled before, so it’s very exciting for us. When we first planned to drill Bellatrix, of course, we didn’t know if we had the barrels in the ground at SNE to take this forward commercially, and we were very keen to drill out some of the exploration targets so that we could add to those barrels. Now, I think Bellatrix has almost taken a back seat to the fact that we’re really looking forward to drilling deep and seeing how our big oil field performs to the North. And if we get some oil in Bellatrix it’s a huge bonus for our JV.

So commerciality-wise, we’ve been running some economics, and our field development scenarios, so it looks like the only field development scenario we’ll be looking at is an FPSO, with tie-backs to all the various discoveries that we make. The tie-back radius for development out here is about 35km, and you can see here that most of the prospectivity we have along the shelf sits within that 35km radius. If Bellatrix is successful then you can see we’ve got a number of look-alikes to Bellatrix that are going to really increase the volume along the shelf. One thing you may see is that the SNE field now is mapped down here. Our Sirius and Soleils are prospects are look-alikes to the SNE field, and in fact now our mapping is telling us that soleil is actually a Southern flank of the SNE field. It’s not been taken into account in our contingent resource numbers either so there’s a good chance they will increase.

So we’ve got excellent PSC terms, I thought you’d like to see some pictures, this is our flow-test taking place at SNE-2, which took place at night, and this is our 7^th generation drill ship that’s operated by COP on behalf of the JV, and this is our flow-test on SNE-3, very exciting I’m heading out there on Friday and really looking forward to walking around on the boat.

Before I close, I do have to touch on the fact that, given the oil price is dropping, cap-ex in our industry is coming down severely, we’ve seen deep-water drill rig rates drop nearly 50%, in the space of a couple of months after the oil price started dropping, so it’s a great time to be using these drill rigs and appraising big discoveries.

Our minimum economic field size looks like being approximately 200 mmbbls, you would have seen that our 2C revised number is 468, which is why we think we’re pretty much there in terms of having the barrels in the ground.

We’ve recently bought an option in the block next door, as FAR, and we’ve shot some seismic, and hopefully we will see extensions of these trends going up into this block, and this is really a story for late 2016/17 for us, but clearly we’re just scratching the surface in terms of oil prospectivity offshore Senegal.

So after having a big year of farming out in 2013, this year and last year were all about appraising our big discoveries, it’s a fantastic project to be involved in, and I do have to finish by saying that we think that we are only scratching the surface, and there are many more elephants to be found lurking under the waters in Senegal, as seen by the trunk that you can see here. Thank you very much.