As we all sit round staring at our screens reading everyone’s posts agreeing, disagreeing, commenting, spilling a few angry words then feeling sorry for what we posted we are without doubt trying to figure out what will the forthcoming ann hold for the SP (the ‘competition that Hermie initiated was quite enlightening due to the wide variance of expectations!!!) and what will occur over the coming months of 2015 to affect the SP ………… I therefore thought I would outline what we know, what COULD be in the ann and where the SP may head in the future ………….. please note that this is all in my opinion only and I would ask that anyone who agrees or disagrees to please do your own research also I welcome and invite any discussion this post may bring!!!
First what we KNOW;
From the FAR ann’s during and after the exploration:
FAN-1: 29 metres of net oil bearing reservoir in Cretaceous age sandstones
A gross oil bearing interval of more than 500 metres
No oil/water contacts were encountered
Distinct oil types ranging from 28° API up to 41° API from a number of oil samples recovered to surface.
CN’s subsequent comments:
The FAN-1 oil discovery is an important event for Senegal and the Joint Venture and could be transformational for FAR.
We have encountered a very substantial oil bearing interval which has potential to be a significant standalone development. Confirmation of a proven hydrocarbon system materially upgrades the potential of the multiple deep fan and shelf edge prospects that FAR has identified in the blocks.
FAR looks forward to working with the Government of Senegal and our joint venture partners in determining follow up appraisal and exploration drilling plans.
I thank shareholders for their support during this exciting time and look forward to providing further
information on the FAN-1 well and continuing the current drilling program with the second exploration well, SNE-1. The FAR Board is committed to protecting and realising the full value of its Senegal blocks for the benefit of its shareholders.
SNE-1 Excellent quality reservoir sands with net oil pay of 36 metres
95 metre gross oil bearing column with a gas cap
Oil of 32° API from samples of gas, oil and water recovered to surface
Preliminary estimates of the contingent resource* range from P90: 150 million barrels, P50:
330 million barrels and P10: 670 million barrels (mmbbls)
Preparing to drill ahead on SNE-1 well to the deeper Aptian carbonate target
CN’s subsequent comments:
This is another very significant oil find for FAR and Senegal. Based on preliminary estimates it is highly likely to be a commercial discovery.
The SNE-1 discovery is a company making event for FAR following our earlier oil discovery in the
FAN-1 well. The SNE-1 discovery has potential to lead to a large stand-alone development and is an
important step forward in establishing an entirely new petroleum province which would be
transformational for Senegal.
It is incredible that FAR has made two very important oil discoveries with its first two Senegal wells.
We expect to resume drilling on the SNE-1 well shortly to evaluate the deeper Aptian carbonate
objective.
The FAN-1 well intersected a significant gross 500m oil-bearing section which indicates the presence
of a prolific oil generating province. The SNE-1 well proves hydrocarbons have migrated up onto the
shelf area which bodes well for the extensive suite of prospects yet to be drilled in our Senegal
blocks.
FAR looks forward to working with the Government of Senegal and our joint venture partners in
finalising follow up appraisal and exploration drilling plans.
Subsequent to the ann we have had all the JV COE’s stating that SNE will likely be commercial providing the final analysis confirms the preliminary results and the Cairn CEO stating they have 330mbo recoverable and that this will ‘clearly be a commercial discovery’ ………….... note those words for those that have doubts about what the JV have discovered!!!
So the JV has made not one but two significant discoveries and no water oil contact made at FAN and with the varying API they obviously discovered several FAN plays and at SNE have quite probably made a commercial discovery.
Announcement by 1Q 2015.
CN stated that an ann re the discoveries will be made by end 1Q 2015, I believe we will get this ann the last 2 weeks of March as the JV will require the max amount of time.
I would not be surprised if only an interim progress report was released for FAN-1 due to the geophysical complexity of what they have found however we should get the final results of the analysis for SNE-1 and I expect that the well could be confirmed as commercial.
For those posters who believe that a find cannot be declared commercial BEFORE an appraisal program please refer to the Tullow Time Line for the Jubilee field on the link provided below.
Under the lease agreement the JV MUST provide the Senegal Govern of an Appraisal Program if the JV is going to proceed with further evaluation. CN also stated numerous times that;
‘FAR looks forward to working with the Government of Senegal and our joint venture partners in determining
follow-up appraisal and exploration drilling plans’
I therefore feel that the JV is in negotiations re the way forward regarding the development at SNE-1 plus a proposed appraisal program which must be submitted to the Senegal Govern prior to 20th May 2015 (6 months from the 20th November ann) however the ann 1Q 2015 may just include a statement that the appraisal program will be ann’d closer to the required date of 20th May 2015.
How will the market and SP react to the ann
I have looked at various companies that have made ann re commercial/appraisal of discoveries and outline two examples which I am sure most will be aware of, the first is Hardman Resources with the Chinguett, Mauritania discovery and the second is Tullow with its Jubilee discovery.
Hardman Resources
This discovery was made round 15 years ago and went through an appraised program prior to the discovery being declared commercial. The only chart I could find is the link below which shows the discovery being ann 1Q 2001, with the appraisal results being completed 2Q & 3Q 2002 and finally the discovery is declared to be commercial 1Q 2004 (would appreciate comments from those that were in Hardsman at this point)
As can be seen the initial ann the SP rose from 30cents to 90cents or x3 times then settled back and gently rose through the appraisal period to rise from 60cents to 230cents (approx x4 times) on the commercial discovery ann
Tullow was quite different from Hardmans in that it was already considered a mid-cap oil explorer and producer with a SP to match.
The discovery was also round 7 to 8 years later than Chinguetti so therefore testing and analysing facilities were a lot more advanced.
The first Jubilee discovery was ann’d in June 2007 with further discoveries ann’d in Aug and Oct 2007. (note the similarities to Senegal multiple discoveries ann’d a few months apart)
The find was then declared commercial, Tullow was designated the operator in Feb 2008 and in March 2008 production development commenced
The results of the first appraisal well were ann’d May 2008 and the second ann’d Nov 2008.
The SP rose from a low in mid May 2007 of approx. £250GBP to a high in Nov 2007 of £640GBP (approx. 2x) reflecting the results of the exploration wells, the SP then dropped to a low of £520GBP mid Jan 2008 and recovered to approx. £650GBP mid March then rose to a high of £980GBP mid June 2008.
Internationally we were then in the middle of the Great Financial Crisis (GFC) and oil went on a slide right down to $40poo in December 2008 (we should be very familiar to THAT situation !!!!) and then slowly recovered over 2009.
As a result the Tullow SP recovered over 2009 reaching a high of £1350GBP mid Jan 2010.
In summery the Tullow SP went from a low of £250GBP on May 2007 to a high of £1356 in Jan 2010 approx a 550% increase however the GFC had quite an effect on the SP over 3 to 4 quarters and this possibly resulted in the SP not reaching its real potential and also delaying any rise until the POO had recovered and the GFC was showing signs of easing.
I see many similarities between the Tullow Jubilee discovery and the FAR Senegal discovery:
Both made multi-well discoveries (x3 for Tullow x2 for FAR)
Both were considered commercial (am assuming that SNE will be declared commercial in the March ann) prior to appraisal.
Both had a problem with a low POO although with Tullow it was not obvious when they ann’d that production development would proceed.
I therefore wonder if the similarities are going to end with the above ……………. I strongly suspect they won’t.
As a summery to the above I have not made any SP predictions …………… all I wished to do is lay out two examples of two very different developments, one were the appraisal was completed prior to being commercial; the other appraisal and development being completed in parallel; it is now for each individual to make your own conclusions.
I also have not speculated what, when or how a T/O may or may not be made; my reason for this is I have no idea on the answer to those questions plus I firmly believe that both FAR Management and FARJOY want to use Senegal to transform the company into an explorer/producer; note that CN has already stated that the discoveries will be ‘company transformational’ when ann’g FAN and ‘a company making event’ when ann’g SNE.
All comments, suggestion and additions to the above are welcome and very much appreciated.
HKP
FAR Price at posting:
7.9¢ Sentiment: Hold Disclosure: Held
(20min delay)