Farjoy
1. There has been speculation on HotCopper about recent trading in FAR, and after our market announcement today that we hold more than 5%, about Farjoy’s investment in FAR.
2. This note is to set the record straight.
3. I am the Managing Director of Farjoy and am responsible for its decisions.
4. Farjoy is a long term investor. It has been investing in oil and gas now for 50 years. It is a significant or substantial shareholder in numerous public companies, positions it has held in some cases for many years.
5. Farjoy’s investments are also strategic, in the sense that it will take positions in industries which it foresees will prosper in the medium term. It takes account of geopolitical concerns and has regard to long-range forecasting. It is also an investor in African enterprises, some public and others private.
6. We have been invested in FAR for some years, in a modest way, and participated in the recent capital raise for the Kenyan prospects, on the strength of the miocene reefs and our knowledge of Rift geology.
7. We then examined the West African prospects. We noted that Cairn had published its opinion of the odds of a commercial strike, and concluded that there was a reasonable (one in five) chance of success. Once the August announcement was made (working petroleum system and oil in the upper northern fan), we decided that the chance of success was one in two.
8. Our decisions to increase our exposure were made on the basis of published information and research, and our view about the strength of management - nothing else. We have not sold FAR, as our notice discloses.
9. There are two papers published in the grey literature, one a joint Hunt/FAR discussion of the 3D of the Fan systems and the 1970s drilling program on the Rufisque dome, and the other a USGS analysis of petroleum systems of Senegal and neighbouring States. There are numerous published papers on the Rio Muni basin, which has strikingly similar geology. Cairn has published a list of its contractors on the Senegal play. Cairn and FAR have made announcements on prospects, and FAR on drilling.
10. FAR is drilling into the best prospect off the upper West coast, and its 3D shows that all the characteristics of a successful oilfield are present, bar the oil. There are numerous stacked fans (old river deltas with good porosity), and 3 fan systems (north central and south), and the 1970s drilling found oil in the Dome, and a kitchen at work. It produces Types 1 and 2 kerogen, with extremely high organic content, as the graph in the FAR presentation to the Good Oil conference shows. FAR has announced that there is oil in the upper northern fan. So long as they are sealed, there should also be oil in the lower fans, as oil migrates upwards under pressure. The strike would also derisk the second hole (already partly drilled) because of its proximity to the north fans, as well as the middle and south fans, which would be drilled for appraisal if there is a commercial strike at the northern fans. It is probable that the reservoirs identified in the 3D would be filled from the same source kitchen. The Senonian unconformity introduces fascinating parallels with the Rio Muni and Levantine basins. Against this is the possibility that the field is uncommercial because of poor seals, oil quality etc.
11. There are numerous risks which attend commercialisation, especially off West Africa. These are balanced by
a. the desperation of host countries to relieve poverty, which sometimes translates into sensible policy decisions within legal frameworks protected by ICSID based investor protection treaties (with which we are familiar through litigation and our experience in Mauritius, Tanzania and Malawi),
b. increasing instability in Iraq and Libya,
c. sanctioned production in Iran and Russia, and
d. expected enhancements to supply security in the EU.
12. The Netherlands, which is the leading EU crude oil consumer, imports 40% from Russia, and 7% from Africa. I think that it would prefer the reverse, and may be prepared to fund appraisal or production drilling by forward sales, if Senegal proves a large enough commercial field.
13. I am not a geologist and do not give investment advice. You should not rely on my opinion to make investment decisions.
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