CNE Sale

Hi all,

Its been the biggest corporate elephant in the room for some time; overshadowing and possibly distraction FAR's PE endeavours. FAR's PE partner would have also signed into CNE's sales DD room to keep tabs on the data and process and may have even submitted or participated in a bid themselves to hedge their strategy given that the arbitration process is uncertain.

CNE's is selling a direct project interest...not a 30% interest in their Senegalese holding coy. Very basically, the price they will be looking for will have 3 basic components:
1. Recover sunk costs: CNE has spent US$407.6m as at June 30
2. Get free carried: I estimate a 10% FC to 100+kbbl/d and first 6 months working capital would be about US$450-500m.
3. Upside: in higher OP times, there would be sharing of the IRR upside above an agreed rate in the form of an additional upfront payment. But those days are gone for now so there maybe an additional oil price or reserve bonus payment structure. I'm guessing this could have a range of US$200-400m of potential upside.
So I'm thinking US$850-900m would be CNE's upfront target with a possible bonus structure.

What a buyer will pay is, of course, a completely different story!

The above is pure guesswork (backed by an ounce or two of experience). But what I do know is that once a deal is done, FAR will graduate to the top of the dance card and become a price maker...for the first time... as those that miss out on the CNE sale look at Plan B....FAR.

Bring it on, I says.

Cheers