"....when will they ever buy, when will they ever buy ! "
For me at least Mike it's a matter of when do They/You & I sell?
Assume 100mmboo to FAR next upgrade based on 13.7% of 750mmboo 2C. Assume 15% upgrade
on previous 641mmboo 2C guidance = 750mmboo Total 2C. MC @7.6cps = $425m - $80m cash
=$345m attributed to 100mmboo 2C. $3.45pboo. More likely $3pboo if you take out all other
prospects, discoveries & other acreage in the portfolio.
I as a shareholder, have at this stage of the game, purchased a barrel of oil for $3, knowing that
in 18 months time some 27mmbbl of that oil will be attributed to FAR's share of 2P. If you think
that 2P reserves will be commanding $3pbbl come FID & a $50 oil environment then you are in
the wrong game. I would put a valuation of $10pboo on 2P reserves @50 oil. Allocate $6 for the
remaining 73mmboo. A valuation in 18 months time of 13.5cps assuming $50 oil, continued low
drilling costs {next year}, and 5.2B shares on issue.
We should be funded close to FID providing we keep our expenses in check & drilling costs for
2018 remain as per previous campaign. Regardless, in 18 months time, we should be able to
value 1/4 of our asset @$270m, v today @$300m for our ENTIRE asset {greater if POO>$50 and
less if below}. This $270m reserves asset will be the criteria at which we can borrow against.
I'm willing to wait 18 months for a 80% SP increase, or if that hasn't eventuated, at least getting
a yardstick as to where we SHOULD be valued in regards to any possible sell down of said asset
and what would constitute good value. Fair value @$50 oil and 27mmboo 2P, 73mmboo 3P/1C,
would be 13.5cps for SNE alone. I doubt I would sell @ that price, others might. Valued @$13.50
pboo for the entire resource/reserve, should we sell out completely. I wouldn't be unhappy with
offloading half of that for $675m, particularly if A2 were to prove the prospective resource
currently assigned to it pre FID, which it should do, one way or the other.
If we have to resort to CR's & Reserves lending, absent any sell down, we may have to issue another
2B shares @ say 10cps {hopefully higher} to raise $200m, plus hopefully $200m in reserves lending.
Enough to ensure we get to first production/cash flow in 2020/21 for Phase 1. We may have 7B shares
on issue come first cash flow/self funded future 25 year revenue stream, but we will retain the FULL
13.7% WI.
If good fields keep getting better as this one has proven..A 5th upgrade to 2C resources from 165mmboo
to possibly 750m+ coming soon, oil proven at FFS1 & Sirius....call it what you will, a "technical" success,
non-commercial, whatever, it has proven up the basin dynamics as well as the shelf reservoirs BEYOND
the boundaries of which lies a massive 1st class asset in SNE alone. I would not be surprised after the
next round of drilling if they drill a second target into Sirius to further evaluate the oil "rim"
discovery at least and hopefully a 50mmboo contingent resource can be attached to this prospect.
Good fields keep getting better.....And so do your RESERVES.....
1-2 years into production that 27mmboo 2P reserve should be upgraded, including a portion of
1P reserves. Maybe 20mmboo 1P reserve & 25mmboo 2P reserve. In a $50 POO environment,
I would hope to get $15 for 1P & $10 2P. $8 for the rest of 3P...1C should comprise any addition to
the assumed 100mmboo net to FAR...it may be 150mmboo should the field eventually deliver
1B boo recovered. Value @ $990m IGV or 14cps.
Production value wise FAR would generate approx $70m per year free cash flow from its share of
production @3.5mmboo per year {325 days discounted} at $20pboo free cash flow. Exploration/drilling costs can be recovered 1st before any major taxes/royalties kick in, to my understanding. The Reserves
Lending component could be repaid within 5 years of production should oil remain @$50. At $70
oil, looking at a 3 year pay off, leaving 22 years of income stream. At $50 oil, the market may value
us at 10cps or $700m, a bit short of the 13.5-14cps IGV assigned.
The IGV assigned would probably be greater than the SP/MC at any given time. That would be the
price I would deem somewhat approaching something of fair value in a $50 POO environment if we were to
sell down or out of SNE. Over 25 years life of the expected field, one can surmise POO may hit $30
or below again. It may hit $100 also. We should be sufficiently insured for a low oil price environment
if B/E costs are $30 or below pboo. This will, unfortunately however, be reflected in our SP.
At some point in the cycle of the field producing, at the same token, oil stands a good
chance of being $80 or higher, despite recent headwinds & sentiment. Inflation, War/Supply disruption
and the fact that $2 trillion has been wiped off exploration expenditure in the last 3 years could
supply the impetus. I'm not banking on world growth to come to the rescue, nor the complete
collapse of the oil industry due to electric batteries in that time frame. Mad money printing and
inflation will see oil rise, as will war.
Say, after 2 years of production oil WAS at $80. 1P reserves @$50 cash flow pboo produced are
not going to be worth $15 pbbl, more likely @30pbbl. 2P @ $20pbbl, 3P @$15 pboo.
Valuation IGV = $1.95B or 37.5cps. Free cash flow generated = $50 pboo x 3.5mmboo per year
= $175m free cash flow per year. Assume reserves lending facility repaid or close to it, and
deduct $50m in taxes/royalties from that share of revenue, giving approx $125m per year
earnings @$80 oil....at 10x earnings 24cps.
In essence, the market values our asset at SNE @about $3pboo currently. As for buying, I am
done for at anything above 8cps. I'm quite happy to have paid $3pboo, knowing that I have
taken the risks in getting there and knowing that a portion of that will be assigned as Reserves
in approx 18 months time. $3 per barrel of reserves anyone? No, in a $5o POO environment
come FID, we should be able to value 1/4 of our asset then v the entire asset as valued today, at
only $30m less. I won't be selling at under 14cps prior to FID, nor buying at over 8cps. I'm
quite happy if FAR could sell down half at $13.50 pbbl or more post FID, particularly if A2 looks
a goer, but I won't be selling. I will be taking the ride and waiting for a turn in the cycle where
hopefully 3 things coincide ;
1. $80 or higher oil.
2. 2C finally upgraded to 1Bboo recoverable or 137mmboo to FAR.
3. SP of 37cps or higher based on 100mmboo net to FAR, higher again if another
37mmboo is added to 2C, I would consider selling @ or above 37cps or higher.
2. @$100 oil some time in the cycle, maybe, who knows, even if for only 6 months
of the cycle...the SP will reflect the higher POO. IGV on 100mmboo, half of which are
1P/2P reserves would be valued imo @ about 58cps. If we get up to 137mmboo 1P-2C
resource, 2 years after production, then IGV would be about 80cps. Of course, as has
been mentioned, the IGV will always exceed the SP at any given time. @80cps IGV
the SP may reflect 55cps of this value. You either sell your shares or wait until FAR
can perhaps sell out closer to the perceived value you have placed on it.
These are only my values I have ascribed. The field may produce LESS than what has been
assigned to the official numbers, in which case values are at serious downside risk. The
project may be plagued with Low POO environment for a time.
So, I won't be selling anytime soon. 3-5 years wait & a 8-10 fold increase in value/SP is not
impossible from where we are at today. If FAR were to sell out of SNE entirely at an earlier
junction, should a deal eventuate, say in 18 months time for the equivalent of 20-25cps
cash value then so be it. A half sell down at this price would be my ideal outcome, that way
we can insure a bit further against a sustained low oil price environment, mitigate the risk of SNE being another Chinguetti, as well as be funded for A2 and others should they warrant it.
Anyways, the quick exit could be only 18 months or less away, at a substantially reduced
premium to where it could be only another 2-3 years away. 20-25cps v 60-80cps as above.
It may however take 5 years for that scenario to develop ie. Oil may hit $80-$100 in 2025/26 in which
case the 20-25cps up front, without the added risks mentioned could be a good deal. Half the risk
and half the upside looks preferable to me.
AIMO & DYOR
GLTAH
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