An NPV of US$12.50/ barrel is a measure of the discounted net cashflow for the project. Finance cost are always built into the DCF model based on the weighted average cost of capital and expected market return of the project proponents. At an NPV of zero the project could still pay its way. A company with stronger finances would use a lower discount rate and generate a higher NPV. If FAR had to borrow at higher rates, then the discount rate used would be higher an NPV lower. For an acquirer, FARs discount rate should be higher than its own so it can improve the economics of a project and increase value just by the mire fact that its equity or debt rate and therefore discount rate is lower than FARs. An NPV of $12.50 / barrel is a good measure of the TO price regardless of whether FAR have finance in place or not. The TO price will be discounted as the acquirer won’t give all the value in the SNE project to FAR.
Even at a 50% discount on US$12.50/barrel, FAR is worth US$612.5m (AUD$850m) at net 98mmbls
FAR Price at posting:
8.2¢ Sentiment: Hold Disclosure: Held
