3am musings

I have a large (perhaps unreasonably so) exposure to FAR and am hopeful/anxious for a positive announcement. However there is one area of concern for me that keeps popping up in the dead of night.

Oil is either present or not. The high tech methods in use - 3D seismic, CSEM - don't change that, they just make it clearer which is the case.

The essential question then is this - what is the likehood that at least one of the the several prospects identified actually has commercial levels of oil?

The Hartleys report of May 2009 values Senegal at 20 cents on a risked basis and $2.94 on an unrisked basis (implying a 7% chance of success). Similarly the StockAnalysis report of April 15th estimates an 11% chance of success. Hartleys say in their report that they estimate the chance of Shell deciding to drill are better than 50/50 which I find hard to reconcile with their risked/unrisked figures? (In a more recent Hartleys report, mentioned in the Australian, but not available yet on the FAR site - they have said they conservatively estimate the chance of Shell drilling at 30% while really believing the chances are 50%+)

So both of these sources seem to be suggesting that the chance of oil (presumably against the group of prospects as whole) is approx 10%, which if correct, changes the whole risk reward ratio.

After all if a stock offers a potential 10 fold upside and a potential halving downside, then it makes a very good punt if the chance of either is 50:50 (although you can still lose half your money of course). In the same scenario, if there is a 10% chance of success however then the whole proposition becomes just break-even on a statistical basis. And in a one-off situation such as this 9 times out of ten you would do your dough.

So this sounds like I'm negative on FAR which is not the case at all, but I do have a genuine concern for this part of the equation.

I'm more than happy for anyone to be explain where my reasoning is misguided or point out the additional factors which I should consider; will help me sleep easier at night,

Thanks, V