decree granted, page-15

Todays update from Hartleys

Senegal Clouds Part to Show Blue Sky

FAR Limited (“FAR”, “Company”) has announced that it has received ministerial approval confirming its entry into the next phase of its 100% owned offshore Senegal licences. Formal grant of the extension is subject to Presidential Decree; however, is considered a formality.
The next licence phase will run for two years from the date of Decree and will require FAR to post a US$5m performance bond. One commitment well is required in this phase of the licence.
The timing of the renewal is a surprise as a Presidential election is scheduled for 26th February. We had thought that any decision may be delayed until after the result. The election may affect sentiment if there is an unpopular result; however, risk has been decreased significantly around tenure so the farmout process can now start to move forward.
Senegal – 90% WI in 800 Million Barrels, Drilling H2 2012
FAR has a 90% effective working interest in three offshore blocks, one of which has had extensive 3D seismic with several drill ready prospects. These prospects are independently estimated to have recoverable oil potential on a P50 basis of 697 million barrels.
This does not include ~100 million barrels (net to FAR) from the Alhamdulilah prospect that extends into FAR’s permits from neighbouring Gambia where African Petroleum Ltd is planning to drill in H2 2012. FAR is effectively free carried through the drilling at a 25% working interest. Success at this well could add >$1 billion in value to FAR, or 50cps.
At the current working interest, we estimate the upside for FAR from the drillable prospects at 303cps (not including Alhamdulilah) or 135cps if the Company farms down to an effective 40% working interest.
Kenya – Drilling Next Door to Two Permits in H2 2012
Through the recent merger with Flow Energy, FAR has working interests in two permits offshore Kenya, both of which are adjacent to block L8, where an Apache led joint venture will be drilling the billion barrel Mbawa prospect in Q3 2012.
FAR has a 60% interest in L6 (north of L8) and a 30% interest in L9 (south of L8), so has high exposure to the results of the drilling. Recent interest in East Africa has been exceptionally strong on the back of 10 discoveries from 11 wells over the last 18 months. Even the presence of shows could result in corporate interest for FAR.
Multiple Catalysts and Undervalued Compared to Peers
Uncertainty related to the tenure of the Senegal assets had held back FAR’s valuation relative to its peers. Now that this is largely cleared, we expect a significant run up in share price. The upcoming election may provide a brief pause or even dip in this rise; however, as H2 drilling by others approaches in neighbouring permits offshore Senegal and Kenya, speculative interest is sure to increase.
We have increased our price target from 10cps to 11cps due to the progress in Senegal and rate FAR as a Speculative Buy.