AGM, page-36

Evening All

Orson Wells famously began Touch of Evil with the then longest pan shot ever filmed, a three-and-a-half minute long take in which seemingly nothing much happened. Sounds a bit like an investment in FAR, although today's AGM proved there is plenty happening beyond the camera's reach.

Chairman Nic Limb's closing remarks hinted at just why there appears to be a lack of action by FAR on such major issues as PE and Djiffere. With the World's major oil companies now stomping around north-western Africa, Nic likened FAR to a flea on the back of a mouse dancing with elephants. "We have to bite the mouse strategically and not too often," he warned, lest we be collateral damage as a mouse gets squashed. "We are all about maintaining all our options all of the time, and we're constantly evaluating where we are."

That accorded with a private conversation I held with COO Ben Clube just prior to the meeting, wherein he maintained that FAR retained a number of options for bringing the vexed question of PE to a head. "It's a question of timing," he said.

... a bit like another issue which was not raised during the meeting but which was a keen topic among the hubbub of senior shareholders afterwards - consolidation. One of them sauntered across to quiz the Chairman, unfortunately leaving me stuck in an awkward side conversation from which there was no escape bar rudeness. While feigning interest in my interlocutor, I glanced across just in time to lip-read the Chairman uttering those same words - "It's a question of timing." In the view of the shareholders to whom I spoke, the time is nigh as they watch the share price cowering under a rain of one-pip traders' blows.

Determined to join their chorus, I waltzed up to 'Admiral' Reg Nelson, a man who knows a thing or two about consolidation having piloted Beach through a successful exercise - making sure Beach wasn't beached, as it were. "The first six weeks after the consolidation are critical," he said. "It helps if you can put in place some buyer support. In that case we issued options with a six-week expiry; if you sold, you lost the benefit. The risk of course is that someone buys the options and gains a 10 per cent stake in the Company. Suddenly you look around and you have a new predator and possibly a new director. But consolidation is something the Board constantly evaluates."

Having seemingly arrived at the end of our story before it began, let's rewind the film to the start of the AGM, which began with Cath in stunning purple and Ben Clube peering through the slitted eyes of a man who arrived on a midnight flight from The Gambia.

We can dispense with the four Agenda items even quicker than did the Chairman, who admittedly was forced to spend a couple of uncomfortable minutes croaking answers to two climate change questions from an earnest young woman who seemed to have wandered into the wrong meeting. Did she not realise she sat amidst 150 people determined to hoover up as many hydrocarbons as possible? Anway, the answers to the resolutions were yes, yes, yes and yes. One only wishes the odds of that occurring were mirrored in the chances of commercial oil at Fan South-1. (Can we not shorten that to FS-1, or more amusingly FFS-1?)

Nic also paid tribute to retiring director Ted Brindle, a bean counter who gave 23 years service including a long stint as Company Secretary. Ted wasn't present to accept the accolade, which might have been a blessing given his Chairman went on to say we hoped to replace him with a woman!

Chairman Nic then exited stage right - I know! - and promptly sat on the window sill and sat red-faced from high climate change sojurn to listen to his purple-clad MD give a white-hot address. You've all seen the presentation, so I will simply pick out a few highlights that caught my (hopefully keenly tuned) ear.

The next capital raise seems a long way off, with Cath confidently asserting our 100 in the kick is enough - "given current plans" - to see FAR through to FID in the first quarter of 2019.

That fact alone should give succour to the growing number of international institutions that are quietly taking positions in FAR that currently hover below (can you do that?) the five per cent substantial shareholder threshold. "And they have been buying on market and helping to drive our share price this year," Cath said. Then, just in case we had missed that "drive", she showed us a chart showing that, yes indeed, FAR's 2017 performance does in fact look okay in comparison with the energy index and Martian marshmallow futures. (I may have misinterpreted that last bit.)

Clearly, Cath told us, these instos recognised the "huge upside" coiled like a spring under FAR. And they're correct, she said, before pricking everyone's ears with the pithy observation that "we have oil in spades out there". And here was us thinking they were using drill rigs.

In the first of several hints that FAR does in fact now harbour hopes of getting all the way to production, Cath observed that SNE was now scheduled to deliver first oil at a time when oil demand is increasing and - wait for it - US shale production is declining. SNE, she said, was expected to break even at less than $US35 per barrel, a figure that continued to fall as rig rates continue to decline. It is now clear that this will be a very profitable oilfield virtually no matter the price of oil (because surely no one will be in business if it gets below 35 again - my words).

The oft-vaunted advantage of bringing CNOOC's financial firepower to FAR's quest for further acreage looks to have copped a flesh wound in the first skirmish, as Cath announced that "we" - CNOOC and us - had been knocked off in an auction of the only open block in Senegal. Who by? In this case, Viva Le France! Cath also revealed our partnership with the Cockney Chinese is a 70/30 split, with our share of any bid to be 30 per cent, so it's not like we are being given a free ride on the dragon.

That competition for acreage is just about the hottest ticket in oil town, with Cath observing that FAR retains a technical and cultural competitive advantage that would soon be eroded by the forces at big oil's command. We must make hay while the sun shines, which will be challenging for people more used to digging around in the dark.

As to SNE and the task at hand, it's full steam ahead for development, whilst at all times keeping open our options to monetise the asset in other ways. Those options again.

As Cath spoke, 150 people had in their heads the quiet sound of a drill bit spinning. We are now a week into FFS-1 and expect results around the end of June - just in time for Mrs OOO's birthday, I quietly reflected.

In a further hint as to FAR's long-term objectives, Cath noted that FAR was actively helping the Government of Senegal to prepare the way for its first taste of offshore oil. We are held in "some esteem", she said, as the longest serving prospector in that part of Africa, before making the startling claim that the west coast seas not having seen a drill bit spun in anger for 40-odd years, "SNE saved the African oil industry". As long as it saves Mrs OOO's capital, I quietly hoped.

Moving to connectivity of SNE far more smoothly than my jerky move to this paragraph, Cath made the first of a number of revelations that I suspect were only revealing to those of us who know every nut and bolt of the FAR wagon train. I know that pre-SNE-6 I had assumed connectivity would be a given, er, given the uniform results we had seen from other wells. Hearing Cath, and talking to Ben, I now know that was presumptive, with Ben describing the jubilation he felt when hearing that connectivity was virtually instantaneous. Cath confirmed that, yes, FAR had seen the connectivity in pulses heard even before they began flow testing, tests which verified that this field would deliver efficiently from fewer wells than might otherwise have been required.

These results are now being evaluated as the JV moves towards an August/September expectation of delivering a resource upgrade. According to Cath, Sirius is absolutely part of the SNE show and it was "highly likely" its oil would be brought into the contingent resource. RISC has been ensconced in FAR's office for the past couple of weeks crunching the numbers (which in itself is tricky to crunch oil) as the JV edges ever closer to the magical billion barrel level. As excitement mounted - well mine, anyway - Cath quietly deflated the bubble by observing "it's all a bit academic anyway because production will be staged", with the first development likely to be around 300 million barrels.

Hopefully the crew of the Cajun Express don't read this, because turning to rig rates and performance, Cath baldly asserted they crewed "a dog of a rig" that registered up to 70 per cent downtime. Athena improved this markedly, to 11 per cent, before the stellar Stella Drillmax took centre stage and turned a two-well step into a more sprightly three-step for basically the same price. Crewed by the A-Team - no, a different one I think - it cut downtime to just three per cent, a startling performance that will require a time machine to invent more time if it is to improve further. And for this, Stella's owner is being paid a paltry quarter of the cash ladled on the much maligned Cajun mob. "We are in a fantastic period to start development," said Cath. "We are not expecting to see rig rates increase and we're looking at very low capex." She believes a further 20 to 30 per cent might yet be shaved off the $12-15 per barrel capex rate quoted just last September. The NPV of $12.50 at $70 oil was "conservative" she said conservatively.

The JV aims to make "a development statement" when it upgrades resource numbers in Aug/Sep. "There's a lot of oil still to be found in these blocks" - more spades? - "we've mapped a further billion barrels outside of SNE".

From there, we moved to The Gambia. Well, we didn't, but Cath's presentation did. She observed that the country's border was "unusual" in that it had been drawn by a British naval captain along a line of fire he estimated cannon balls fired from his ship might reach. Good grief.

The Gambia, observed Cath, could be another monster. As those productive but thinnish 400 sands moved south from SNE and cross that crooked Gambia border, they thicken. That southward journey also takes FAR closer and closer to the river mouth from which these now oil-rich deposits were spewed and which are now likely those "prolific source rocks" about which FAR has spoken for three years. "We now understand a lot about those 400 sands having drilled eight wells into them," said Cath in a voice detectably more animated. The northernmost prospect, Saba, has been mapped to contain 500m barrels, a staggeringly large number rendered less staggering only because we Farites have grown used to big numbers. If this comes off, 500m barrels is a very big and lucrative field. How much of it might we own? That will depend on the musings - and bids - of a number of companies that have already been admitted to FAR's data room, because we will be farming down to manage risk.

Cath went on to talk briefly about Guinea Bissau - "one for a couple of years time"; Kenya - still a too-dangerous place; and Australia - rocky shoals which FAR thinks are there because of oil seeping from below; but you could tell her heart was not really into it. Nor were those of her audience, who were visibly and audibly shuffling towards the elephant in the room - PE.

Thought you might ask that one, said Cath, before wheeling out a couple of slides she had thoughtfully prepared beforehand. Now dear reader, your scribe does not wish to bore you with further reams of copy about a subject that has drained us all of valuable data allowances in recent months, but there were a couple of pearls on display. Briefly:

> Once it had picked itself up off the mat after COP's 14 June 2016 announcement, FAR immediately asked for, and was given, the terms of the sale so it might consider its PE right. Trouble was, it was given a one-page summary of a complex transaction.

> Not fair, said FAR. F-off, said COP. So, 28 days into a 30-day period, FAR issued COP with a dispute notice on the same day COP received a missive from the Senegal Govt urging it to resolve the dispute in accordance with the JOA. Cath knows it was day 28 because "I happened to be in Houston that day". One suspects she might have delivered the letter in person at the end of a poison-tipped arrow fired at the heart of the COP representative.

> COP chose to settle with WPL within the 90-day period, and to blithely ignore not only FAR but also the Government, which it refused to meet. "We were outraged," said Cath in the morning's biggest understatement, as "we were prepared to consider negotiating a settlement".

So where are we at now?

Cath dropped the surprise bombshell that a couple of weeks ago the Government decided it was all too hard to prosecute the issue with COP and handballed it back to FAR. So the ball is now in our court to initiate proceedings against COP. A shareholder then asked if the matter were complex, at which point Nic almost fell off the window sill to describe the question as "an understatement". Cath observed that the time for negotiating a settlement with COP "has probably gone", before explaining that arbitration - in a French court under Senegalese law - would cost about a million, would take a year, but would be binding, whereas a legal stoush would likely take forever and would probably be won by the deepest pockets. (She didn't quite put it like that, but that's what she meant.) FAR, she said, had employed good lawyers - "Dallas guns" - but that COP was no doubt "lawyering up" as well. A gunfight now seems a formality. Hopefully our Dallas guns shoot as well as the ones whose shots were heard around the world 54 years ago. (Yes, it was really that long ago.)

While all this goes on, FAR refuses to acknowledge Woodside as a JV partner. While this might seem awkward as they queue together for lunch in the JV canteen, Cath was at pains to point out that FAR had nothing against Woodside, which they regard as being a competent company. To cut it short, you are good blokes, but we don't recognise your right to be here.

Cath left PE by observing that FAR retains 15 per cent of a massive asset irrespective of the outcome. "We have nothing to lose and everything to gain." That, to me, sounds like arbitration at 40 paces, although Cath again observed that other options are possible. "We are remaining firm and considering what action we might take against COP."

In answer to a follow-up question, Cath observed that throughout this Senegalese venture, the JV partners had provided one another with PE waivers and that this case with COP had been no different if the Texans had chosen to take rather than tool up. "We're not fools," Cath observed, "we've said all along we're open to negotiations", a boulevard now seemingly closed off.

Meanwhile, away from the gunfight, there is work to be done, and the JV continues making decisions that will have a big bearing on our fate. One of those was to drill FFS-1 rather than Sirius or another hole into FAN. That decision was made a little easier when the Government told the JV that if it chose the southern location, the JV would then have the right to take the whole of the deepwater licence to production. Holy moley, that's a massive prospect if they can unravel the secrets behind that 500m oil column. FFS-1, Cath said, would give us further insights into those mysteries even if it is a - cough - duster. (Just on that, I asked Ben about that 18% COS figure. That's the chance, he said, of encountering oil. The chances of commercial oil were, then, somewhat less. It puts into perspective the enormity of those first two exploration wells that both came up trumps.)

With the meeting now longingly eyeing off FAR's biscuits, I riskily ventured - on your behalf I might add - one final question: Djiferre. FAR, said Cath, had met its million-dollar obligation to shoot 3D seismic for Trace, which had now seemingly baulked at coughing up a $US15m lodgment required to continue with its interest in the block. FAR has now looked at the seismic, said Cath, "and we're still deciding if its a block we want," she continued in a tone of voice that suggested it wasn't.

So, there you go, another AGM done and dusted (not a phrase to be uttered within FAR earshot). I've been to three now and am either part of the furniture or a serial pest, because FAR's top echelon all know me by name. I prefer to think they welcome the chance to read more of my erudite prose, although equally I guess they have me marked as a lunatic to be avoided.

My take? It's an opinion, same as yours, but I remain confident about this Company, its Board and Management and its prospects. I think these are good, competent people who can make this happen for us. A few weeks back, I cranked up my investment by a third and after today I see no reason to regret averaging my price down.

Oh, and Touch of Evil's record pan shot?

Ends up with an exploding car. Hopefully the metaphor is an exploding share price, which as revealed in an earlier post, I now believe has an underlying value of minimum 25 cents.

OOO ooo-ver and out.