FAR Ltd chief executive Cath Norman believes it must only be a matter of time before the broader stockmarket catches up to the value that the junior's fellow oil explorers and investment professionals are putting on its "fantastic" set of assets.
But with a share price that has barely moved over the past 12 months, despite significant progress in exploration ventures in Senegal and The Gambia, FAR is inevitably exposed to the sort of cheap takeovers by private equity and other bargain hunters that are typical in the weaker part of the oil price cycle.
"We're vulnerable to anybody at the moment," Ms Norman said in Sydney.
"Industry is valuing assets much higher than the market."
Last week's deal for Malaysian national oil company Petronas to invest in FAR's new oil exploration venture in The Gambia saw little market reaction. But Ms Norman said the terms of the deal – where Petronas will pay for 80 per cent of the costs of an exploration well to earn a stake of half as much at 40 per cent up to a $US45 million cap – are reminiscent of deals done when oil prices were much higher than today's $US65 a barrel.
"We haven't seen a two-for-one deal since $US100 oil prices," Ms Norman said, noting Petronas is paying the equivalent of nearly $US700,000 per percentage point of equity, compared to the $US150,000 per percentage point paid by FAR less than a year ago for its original 80 per cent stake.
"For us to get those terms is fantastic."
The deal, under which Petronas will also reimburse FAR for spending so far, paves the way for the drilling of the large Samo oil prospect off The Gambian coast late this year. The well is targeting a potential 825 million barrels of oil on the same geological trend as FAR's large SNE oil discovery and has been deemed by consultancy RISC to have an unusually high 55 per cent chance of success.
The well is the only one to be drilled by FAR this year as
work in Senegal switches from drilling to development plans for the circa $US3 billion first phase of the SNE oil project, where a final go-ahead is targeted for mid-2019.
The scale of the project, which is targeting start-up in 2021-23, puts a $US450 million funding task on the shoulders of near-15 per cent SNE owner FAR, more than its $423 million market cap.
Ms Norman said FAR's share would be about half funded by debt, potentially involving export credit agencies and commercial banks, and the rest by equity, where various options were under consideration and with no intention to tap shareholders.
FAR shares closed at 7.9¢ on Monday, compared with 7.8¢ 12 months ago, with a range seen of 6.6-9¢ during that time. The four brokers with recent valuations of the stock cited on Bloomberg have target prices of 12-14¢.
The relative heavy funding burden for a junior, the long-term nature of SNE, and the lack of near-term catalysts for the share price given a sole exploration well this year are all seen weighing on the share price. Market sources also point to the lack of appeal of the resources sector to younger investors compared to technology stocks, while
an ongoing arbitration case over the Senegal venture between FAR and ConocoPhillips may also be clouding investor sentiment.
Read more:
http://www.copyright link/business/...ambian-oil-well-20180304-h0wzdd#ixzz58uEz7ITU
(20min delay)