Morning All
Nothing like a largely sleepless night - too much coffee! - to give one's brain time to analyse events near and FAR.
A few things have been gnawing away at me for a while now:
> Why did COP cop out so spectacularly and suddenly after being so bullish Senegal?
> Why did it sell at such a ridiculously cheap number?
> How come FAR was blindsided when WPL announced it was buying COP's share? In other words, why before WPL's announcement did COP not inform its JV 'partners', who themselves had PE rights and so needed to be informed?
Over the past few days, we've seen surface several pieces of information that I think now answers those questions. Bear in mind I am a long-standing conspiracy theorist!
It is now beyond question that FAR intends to PE if possible. It also seems FAR has lined up capital backers: Phillip321, who is clearly a market player, and now our own erstwhile Waterman are both of that belief - to wit Phillip's PE-squared reference.
We also now know there is a legal impediment to what seemed like straight-forward pre-emptive rights. Malcy and Phillip have both said so; Waterman agrees, although I suspect those are probably the sources he quotes.
So if FAR has the intent and the money, who is putting the impediments in its place?
No prizes for guessing one culprit, Phillip today confirming that Woodside seeks to cement its low-ball bid and is claiming FAR is without recourse.
To be honest, I always assumed the other culprit would have been Cairn, looking to maximise its position in Senegal, but last night we found out Cairn has no intention - or at least no overt intention - of doing so. Which leads us to Houston, where clearly now we have a problem - the evidence for which, it now becomes clear to me at least, is Phillip's pointed references to "bastardry" and "Texas barbecues".
WPL argues from a position of weakness; it is outside the JV and has everything to gain from throwing bombs. COP, on the other hand, is a JV partner - and therefore signatory to the JV agreement wherein lies the PE clause - and is the owner of the 35% of the asset now up for sale. So why should COP care whether or not FAR pre-empts? It will get its money anyway, just from private equity backers of FAR rather than from Woodside.
Here, dear reader, is where the conspiracy theory kicks in, because surely COP would only care if it sees further upside beyond the $430m plus costs it signed up for with WPL. There are numerous possibilities, most of which I think involve COP returning to the Senegal stable. It could be, for instance, that COP has already agreed a side deal with Woodside, which would go some way to explaining COP's secretive behaviour. It could be that COP is the one sitting on FAR's share price in the expectation that a weakened FAR will at some point deliver COP a cheap 15 per cent. Equally, I guess, Woodside could be the one controlling our register having agreed with COP a way of delivering share back to the Texans. You can extrapolate your own theories: My point is that however you slice and dice the Texan barbecue it looks to be rancid meat.
And why would the Texans be so bloody minded? Lucre, and plenty of it. Even the Scots now say SNE is commercial at $35. Commercial is not break-even. It would, I think, be predicated on at least a 10 per cent ROI, so let's say anything over $30 is profit. What might the oil price be by 2021? You'd have to think given demand growth, field depletion, reduced expenditure, etc that a barrel would have to be somewhere north of, what, 60 bucks? 100 bucks? In the spirit of Scottish conservatism, let's say 60. And by then, SNE will be confirmed (in my humble opinion) capable of delivering way in excess of a billion barrels. Say a billion times a minimum 30 bucks, equals $30 billion profit. We are talking serious, serious money and we are therefore currently experiencing our own real-life Big Oil moment as a result.
In Texas hold 'em you gotta know when to hold 'em and know when to fold 'em. I get the distinct impression the Texans ain't folded yet. I just hope FAR is sitting with its back to the wall.
OOO
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