Ann: Response to ASX Query Letter, page-87

FAR management is essentially a team of explorers. There is nothing inherently wrong with that, but we can see that in their risk taking approach. Exploration is essentially a numbers game, where any new well can be a dry hole, but if you hit it (big) you can hit the jackpot. If you have enough money (and you are good enough) to drill enough discoveries to cover the cost of the dry wells you can do quite well from this strategy.

The problem is that this approach does not always work so well in other aspects of the oil industry. Arbitration was a win-lose situtaion where you only had one shot - you either win or you lose. There is no "next well" (next arbitration case). The same thing goes for the financing, you either get it or you don't.

SNE was a succesful discovery, and FAR and the team deserves credit for making that happen, both getting it farmed out as well as finding oil. Their main problem has been the risk taking approach later, and that is where we are seeing the exploration mindset failing. A more prudent approach would have been to drill Soloo instead of Samo. Samo would have been lower risk as it is (probably) an extension of SNE instead of going for the fences with Soloo. A much lower risk discovery there would have made the shareprice increase, and probably made it much easier to raise enough funds to allow the secure the debt funding sooner.

In other words, there is a time and a place for explorationists, but FAR was looking at developing and funding a discovery at this stage. They would probably have been better suited by having an engineering or business mindset guiding the company in this phase of its life rather than having an exploration mindset.

That of course is neither here nor there at the moment.