Farm out Requirements?

With reference to the Australian article yesterday, KAR’s engineers are 90% confidence a development will go ahead if the K-2 appraisal drilling achieves its targets. The caveat being it’s a 60% chance of success.
The other numbers shared where $3B to develop on a 100% basis, so KAR’s share could be anywhere from $1.35B (45% basis) to $1.95B (65% basis).

Now these are my theories on the delays to finalising farm-out:

1.    If KAR wanted just cash and free carry, they’d make the final 3 contenders put up their final offer, close the auction off and announce the winner. Simple enough for the local real estate agent to handle.
2.    If KAR are starting to think about how they fund their share of development, then they might also want a partner who’ll either act as a guarantor or have deep enough pockets to provide some or all of KAR’s share until first production. This is not saying the project isn’t strong enough for KAR to get the funding on its own right, but it might make moving to Final Investment Decision a hell of a lot quicker if the funding is a laydown messier.
3.    If discussions on finance have already commenced with bankers, the need for a farm out might also be dictated by the bankers wanting another token heavyweight in the JV.
4.    If KAR want to find the right partner to help drill the really deep stuff. I place less weight to this reason as the projected free cashflow will buy the necessary experience and procure the right equipment once first production from Kangaroo flows.

The other number that’s beginning to get some airing is $3B for development and 2 years or thereabouts to payback development cost on a 100% basis. The glimpse this provided on free cashflow is something like $1B every year for up to 15 years, again on a 100% basis. Whatever KAR retains, its share will be close in size to an Origin Browse deal every year during production. Hence why Brazil can only be considered transformational.