Why Far is Undervalued., page-29

There are other ways of valuing a company apart from a DCF analysis, which is really a project evaluation methodology.

Regarding the value FAR specifically, the current market cap roughly reflects a DCF analysis of the SNE project as it stands based on certain assumptions around capex, discount rate etc.

What will change the value of FAR
1. SNE FID. FID will require financing to be in place and at this point the key parameters regarding capital costs and cost of capital will be well known, so the discount rate/risk for the will be known. The discount rate could be less than the 10% and as the project pays out the discounting of the cash flows will decrease further.

A difference in cost of capital (discount rate) is one reason why the asset could be worth more a potential purchaser of the asset, like Woodside, who could be running their economics with something as low as a 5% discount rate. The key economic parameters for the SNE development project will best known they can be at FID.

So I would expect the value of the SNE project to appreciate over time. The key question is whether the FAR share price will appreciate which will depend on their capital management. If you look at Cooper Energy, their share price has doubled since they took on their Australian gas project which is almost at FID.

If you jump to say 6 years time, FAR could be producing 15,000 BOPD, project paid out and debt free. The value of the SNE project at that time will be the value of forward cash flows with a minimal discount rate.

So I would expect the value of the SNE project to appreciate over time. The key question is whether the FAR share price will appreciate which will depend on their capital management. If you look at Cooper Energy, their share price has doubled since they took on their Australian gas project which is almost at FID.


2. Another discovery, e.g. Gambia, maybe SNE North, will materially change the share price.