FAR (ASX) AGM

Originally posted by Oddoneout: ↑

Where does FAR find $631 million* to 'opt into' COP's 35 per cent? I reckon that would be the least of our problems; FAR would have options.

The most obvious would be a straight-through sale of most or all of the 35 per cent and with 14 players - read big oil - sniffing around the data rooms, there seem to be plenty of potential buyers. At worst, FAR might need bridging finance between purchase and resale.

You'd think if FAR suddenly owned 47.5 to 50 per cent of SNE it would sell down but not out. Why not have the best of both worlds and sell enough to fund its share of development costs, then sit back and wait for cash to flow with the oil.

Rough back-of-the-envelope calculations show how profitable that would be. FAR would purchase COP's share at the 'discovery' rate of $2.20 and on-sell for, what? - triple or maybe quadruple as fully appraised barrels? Be conservative and say triple, or roughly seven bucks US. Thirty-five per cent is around 190m barrels, so FAR could sell the lot and retain through to production the 80m it currently owns:

Purchase 190m at $US2.20 = $US418m ($AUD585m)
Sell 190m at $US7.00 = $US1330m ($AUD1862m, or roughly 30cps)
Retain 80m to production

Using an NPV of $US10 per barrel gives FAR current value of around $AUD1120m for its SNE asset - ie our 80m barrels assuming we retain the full 15 per cent.

Not hard to see why successful PE is the company maker we all hoped Samo was going to be.

Also easy to see why Peter Coleman can't afford for Woodside to lose the 'asset' - sorry, company - it acquired from COP. Chairman Nic apparently said if Woodside loses it would need to fight about SNE's sunk costs with COP. Whilst I find that surprising - I would have thought a winning FAR would acquire the 35 per cent but also the sunk costs - it would be a more than welcome outcome. If true, then Coleman stands to lose SNE plus maybe another couple of hundred million dollars.

It seems to me Coleman must blink at some stage in the next four months ... UNLESS he is totally convinced Woodside's case is unassailable (and who is ever in that position in a legal two-horse race?). We are talking about two billion dollars in value he walks away from if they punt and lose.

Of course Coleman might simply take the view he either wins at arbitration, or loses and then buys FAR's 35 per cent. But with 14 competitors suddenly sniffing around SNE, he can't be sure he will get that 35 per cent, and most assuredly will not get it at a bargain price.

It strikes me that FAR is playing its hand beautifully here. It is shopping around its 15 per cent just in time to establish new benchmark pricing as arbitration looms. By the time the three wise men meet - or at least before they announce their determination - FAR will have a current market value for the contentious 35 per cent of SNE. What a timely piece of information.

The vice is slowly but surely tightening on someone's agates at present. I'm sure the tears are welling in his eyes, but does he blink? Or does he take the punt on the toss of a legal coin?

I remain pessimistic about arbitration (if only because my Samo optimism proved to be misplaced and personally expensive), but our Chairman seems upbeat about some gems that were turned up in discovery so who knows - we might yet win. It would be a welcome change of fortunes for a stock that is establishing a track record for disappointment despite a five-year flow of mainly good news.

OOO

* I work it out at $585 million but Ya is way more diligent and knowledgeable than me. I stand to be corrected on all my rough workings above and will happily acknowledge and resubmit the post if I'm wildly out.

Expand

Ooo,
Don't forget to calculate the impacts of the other JVs pre emptive rights in any on selling by Far,if (and imo a huge if !!) Far are successful with their claim.
I guess all who attended the AGM,got a good dose of the fuzzies by NL,and came away feeling like a Winner, even if Mr Market puked on the SP today.
lol,
kimbo89

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(20min delay)
Last 49.0¢		Change 0.000(0.00%)		Mkt cap ! $45.28M

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49.0¢	49.0¢	49.0¢	$10.77K	21.98K

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