A new optimism, page-44

Hi Rodney

I reckon you're on the money. CRs are dilutive only if they fail to increase company value by less than the cost of capital. FAR is not in that boat.

FAR's performance should be compared across a number of criteria, including peer and industry index ratings, in which case it stacks up okay. We are battling some fair headwinds, including the non-discretionary need to constantly raise capital, the short-term dilution this brings, the opportunities afforded shorters, and of course the macro environment (which is tentatively turning our way).

Over the course of the most recent two CRs, FAR's 2C resource has doubled, from 45m to 88m barrels off the top of my head. At, say, $US10pb, when converted to $AUD that's a value increase of about $600m already. To get to this point, FAR has maybe expensed $40m-odd(?), or basically most of last year's CR. It looks like it will spend around half of the most recent CR to complete the contingent wells (assuming the last two are agreed). Now the guesswork really starts, but I anticipate FAR will again nearly double its share of SNE - ie I think SNE will at that point exceed a 2C of a billion barrels. That would give FAR around $AUD2 bil in resource. Thus FAR would have converted $70m in capital raised into an increase of maybe $1.4 billion in value, a factor of 20. That is not dilutive.

The market, or big oil, will not ignore those sorts of numbers and our SP will increase to reflect that. I freely admit these numbers and assumptions are rubbery; what I'm saying is our disappointment in the SP should not distract us from considering the longer term implications of our investment. Cheers

OOO