FAR 15/10/2018 11.5cts
So great to see shipleave port last night. What follows is pure speculation, my own personal views.The share values ($US) are closer to NPV and not what you may see up front. Theyare a rough guide.
Sorry for notreplying individually. Thanks to those for their welcome. No, I am not someprevious wolf in sheep’s clothing. This not my usual style. Usually I do notcomment on shares that I find. It has been over 7 years since I last found acompany or companies I liked enough to discuss.
Thanks to those whoanswered some of the replies on my behalf re China Oil which was a blanket termas was surmised. I thought that when I first read it a while ago; would be niceand fitting to have a Chinese involvement. It was a stimulating idea for areasA1 & A4 if up for tender pending court proceedings. It is just my personalview that the involvement of three parties Petronas, FAR and a Chinese majoroil company might be a very good team. Senegal and The Gambia may like to havea Chinese major oil company involved. I think relations between Senegal, TheGambia and Guinea Bissau have been excellent since recent elections. True it isnot a joint venture, until there is a venture, but my point was not to misleadrather to point out to less informed investors the potential of agreements withanother major.
So quite right, it isnot a JV until the fat lady sings. Let’s just say FAR is friendly and has agreementswith other parties and open to the licences and percentages which may materialiseafter court proceedings. Some of which it may have first call. Thanks again forothers bringing out the material support and discussion. I think my point wasthat there are many irons in the fire that will not cost FAR so much and whichcarry huge kudos. Not everyone is familiar with such things.
I am about to dosomething, a back of the envelope calculation. I needed to do it for myself toplace some sort of ball park figure on the value of FAR for now and in future. So,I share an imperfect valuation. I welcome someone else to provide another. Imust first lay out the scenario. I do this in a way to assist others to betheir own masters and make calculated decisions on when to sell, buy, how much,when, and their options.
The decision to drillSamo is a no brainer. If it is negative, if the rocks are not commercialenough, if there is water, just gas I honestly do not care. If it is positivein any way even less than the 50% probability I will be blown away. Phoenix 3for CVN was a far worse result to CVN than Samo would be for me. The reasonbeing that Phoenix 3 was originally terminated due to high gas pressures. Naturallyeveryone expected it may have a high probability of success, but it was not tobe. But CVN is still strong.
I suggest that ifSamo proves negative that the drilling of the next adjacent prospects may notbe a sure thing. It may be more prudent to drill a prospect mid-way between SNEand Samo and still be inside The Gambia; especially if facies change in the rocksreduce their commerciality (even in the presence of hydrocarbons and gas). Thisis more about larger volumes, confidence levels and optimum use of fundstowards a development goal. It is not about proving up a 20-year reserveimmediately. Any Samo success whether it be 20%, 50% or more would bephenomenal TO ME (personally). Because it would raise the confidence levels ofa far greater strike length of prospective lithologies and even more potentialsatellite targets. The initial drilling of Samo and one other strategic holeshould then see a concentration on evaluation and development holes to provideearly revenue with optimum expenditure. This is not about proving up 600million barrels of oil to FAR to have some major take it away.
At the earliestpossible time this undervalued share (personal view- currently 11.5cts) hopefullymay get re rated such as to raise capital with the least dilution of return.Just to put some numbers to it. A 1 for 5 share raising at 20cts would yield around$A218m (US$155m). If Samo is successful a higher priced capital raising wouldbe better for all. Samo has the potential to be huge in the positive and not adisaster in the negative. It will provide important data.
For exercise Idecided not to total up what we know about all FAR resources, reserves andprobabilities to date because they will change. I leave that up to the companyto tabulate them better once Samo is finished. I try instead to make a template.One you can use as a guide to a share price value based on major criteria ofnumber of shares on issue, a cost of US$35-barrel production, three prices foroil $US60, $US80 and $US100 along with various reserves and of course using %30tax. I know there will also be The Gambia tax, but I am not able to provide perfection.
You can all have funyourselves doing own calculations of what you think are reserves. You can improveon anything else you do not agree with. Not shoot the messenger. I do this toput you ahead of the brokers and anyone else who has US$2.1 billion of sparecash flopping around.
Remember everything relatedto the graph and pretend share issue is in US$. You can also choose your ownexchange rates too. They are ball park figures. I do not therefore try topredict a share price number but I do have three in mind one for now, 3 yearsand another in 6 years. Sorry I did not present all three price tables forbarrel prices I show one as an example ($US80 barrel) and extracted enough datafor graph from all the three price tables I made. The bigger the reserves thelonger the time frame and potentially more dilution from capital raisings butnot necessarily disproportionate to reserves.
If Samo is 50%successful and If 20% Erin’s share goes to FAR and if FAR has access to A1& A4 I think I will have heart attack It is very exciting stuff. I am notgood enough to put a line on graphs. This was my first attempt to use graphs onExcel since I was an expert with Windows 95. So sorry I could not do this stuffproperly. I was not even sure the blog would take a table.
Using the US$80-barrel oil and 400 millionbarrels of oil reserves as anexample, US$, a A$0.20 share issue at 1 for 5 and converting everything intoUS$ at 0.71 x rate. We arrive at a share price of US$1.95 for a total of6,553,838,950 shares (including cash of just overUS$155 million).
I appreciate shareissues will dilute graph figures. But you can also postulate on their pricesand how many issues. If Samo is successful, that will be made easier. I nowrefer to graph and a test of just one share issue on those estimated graphvalues.
This merely adds a perspective to the graphthat follows. Using a value (for effect only) at US$80-barreloil and 400 million barrels of oil reserves to FAR this reduces the sharetarget value (back of envelope) by 15.6% from US$2.31 to US$1.95. My reason toshow this is merely to highlight the importance to get share price to fairvalue to raise the capital with least dilution. Most of you are aware of this.Often anticipation of the event is more lucrative than the reality of raisingmoney and production itself. I also know you are going to say that they willneed a hell of a lot more money than US$155 million. Very true. Samo could be agame changer and for a company with so many shares and undervalued (my view) atleast they have a chance that only other companies can dream about. If Samo fails,you can revert to a lower or higher estimates of share value on the graphaccording to reserve expectations. This is not intended to be a bullish blogbut seeks balance. One does not have to be heavily invested and high risked toreap benefits that may be better than bank rates. I use revenue rather than profit because thereare so many factors.
Assuming costs US$35 barrel Share price in $US |
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Revenue is minus costs in millions | Oil price $US80 |
| | | | After tax | |
mmbls | Costs | Oil Price | Revenue | 30% | Shares |
50 | $35.00 | $80.00 | $2,250 | $1,575 | $0.29 |
100 | $35.00 | $80.00 | $4,500 | $3,150 | $0.58 |
150 | $35.00 | $80.00 | $6,750 | $4,725 | $0.87 |
200 | $35.00 | $80.00 | $9,000 | $6,300 | $1.15 |
250 | $35.00 | $80.00 | $11,250 | $7,875 | $1.44 |
300 | $35.00 | $80.00 | $13,500 | $9,450 | $1.73 |
350 | $35.00 | $80.00 | $15,750 | $11,025 | $2.02 |
400 | $35.00 | $80.00 | $18,000 | $12,600 | $2.31 |
450 | $35.00 | $80.00 | $20,250 | $14,175 | $2.60 |
500 | $35.00 | $80.00 | $22,500 | $15,750 | $2.88 |
550 | $35.00 | $80.00 | $24,750 | $17,325 | $3.17 |
600 | $35.00 | $80.00 | $27,000 | $18,900 | $3.46 |
650 | $35.00 | $80.00 | $29,250 | $20,475 | $3.75 |
700 | $35.00 | $80.00 | $31,500 | $22,050 | $4.04 |
750 | $35.00 | $80.00 | $33,750 | $23,625 | $4.33 |
800 | $35.00 | $80.00 | $36,000 | $25,200 | $4.61 |
850 | $35.00 | $80.00 | $38,250 | $26,775 | $4.90 |
900 | $35.00 | $80.00 | $40,500 | $28,350 | $5.19 |
950 | $35.00 | $80.00 | $42,750 | $29,925 | $5.48 |
1000 | $35.00 | $80.00 | $45,000 | $31,500 | $5.77 |
Speculation ofdilution of a share issue on a possible future share price
| Shares | $US | $US | |
Possible | 5,461,532,458 | $12,616,139,978 | $2.31 | Share Price |
| | $155,107,522 | | 1 for 5 @ $A0.20 |
After an issue | 6,553,838,950 | $12,771,247,500 | $1.95 | Diluted Share price |
\s
| | Reserves | Share |
| | million barrels | Price |
| | 100 | $0.32 |
| | 200 | $0.64 |
| | 300 | $0.96 |
Oil $US60 | | 400 | $1.28 |
| | 500 | $1.60 |
| | 600 | $1.92 |
| | 800 | $2.56 |
| | | |
| | 100 | $0.58 |
| | 200 | $1.15 |
| | 300 | $1.73 |
Oil $US80 | | 400 | $2.31 |
| | 500 | $2.88 |
| | 600 | $3.46 |
| | 800 | $4.61 |
| | | |
| | 100 | $0.83 |
| | 200 | $1.67 |
| | 300 | $2.50 |
Oil $US100 | 400 | $3.33 |
| | 500 | $4.17 |
| | 600 | $5.00 |
| | 800 | $6.66 |
| | | |
(20min delay)