32 Cents - Bell Potter Broker Report Summary

FAR Ltd (FAR)

SIGNIFICANT OIL DISCOVERY OFFSHORE SENEGAL

FAN
-
1 well
encounter
s
over
29m
of net oil bearing reservoir
FAR Limited (FAR) has made a major oil discovery
,
with a 15% working interest in the
FAN
-
1 deep water well in offshore Senegal, East Africa.
P
artners
in FAN
-
1 are
Cairn
Energy Plc (Cairn, LSE
–
CNE, not rated) which is the Operator (40% interest);
ConocoPh
illips (35% interest) and Petros
en (the Senegal state oil company, 10%
interest
free carried
). The well identified at least 29m of net oil bearing reservoir within
a gross oil bearing interval o
f over 500m in a series of stacked deep water fans. No
oil/water contacts were encountered, indicating the well did not intersect the thickest
part of the oil bearing reservoirs. Samples of generally light crude oil (ranging from 28°
API up to 41° API) wer
e recovered from a number of oil samples recovered at surface.
Most significantly, the FAN
-
1 discovery demonstrates the presence of a proven
hydrocarbon system. It validates and increases the potential of the numerous
other nearby oil targets, one of which
is about to be tested by the SNE
-
1 well.
Further analysis likely to upgrade size of FAN
-
1 discovery
FAN
-
1 is an exploration well to test for the presence of a major hydrocarbon system.
Initial indications are that the well has exceeded FAR’s pre
-
drill unr
isked potential
resource estimate of 900 million barrels (Mbbls) on 100% basis. Oil samples, core
samples and wireline logs will be further analysed along with a correlation done of the
results and the 3D seismic to enable a better understanding of the lik
ely extent of the
oil bearing sections. This analysis may result in the identification of additional oil pay
intervals and potentially increase the oil resource volume. Detailed post
-
well analysis
will also assist the planning of a follow
-
up appraisal and
exploration program. The
FAN
-
1 joint venture partners believe the discovery is potentially capable of supporting
a stand
-
alone commercial oil development.
Back
-
to
-
back SNE
-
1 well spuds on nearby shelf edge play
FAR’s explo
ration rig will now resume drilling the nearby SNE
-
1 well. The top 1,900m
of SNE
-
1 was drilled during maintenance at FAN
-
1. SNE
-
1 is targeting a shelf edge
system where FAR estimates a potential resource of about 600Mbbls of oil in place
(unrisked best est
imate, 100% basis).
Investment thesis
–
Valuation $0.
32
/sh
With limited communication of the FAN
-
1 discovery by well Operator, Cairn, the market
has not fully appreciated the significance of this discovery.
The limited response in
Cairn’s share price suppo
rts this view.
We value the discovery at $0.12 per share to FAR. Our equity adjusted base case
valuation of FAR is $0.
3
2
per share and our equity adjusted upside valuation is $0.
69
per share
.
We see further upside to our Senegal valuations from the back
-
to
-
back
drilling of the SNE
-
1 well, leading to further de
-
risking of the other nearby prospects.
FAR is
rated as Speculative because the company is engaged in high risk p
etroleum
exploration and does n
o
t
have
any
established
earnings
or cash flow
.