FAR Ltd (FAR) First exploration well in upcoming appraisal program in offshore Senegal to target Beatrix Prospect SNE field appraisal program confirmed with drillship selected and drilling expected to start in early 4Q 2015. The Operator of the offshore Senegal project, Cairn Energy, has announced that it will drill an exploration well on the Beatrix Prospect in offshore Senegal as the third well in the upcoming appraisal and exploration program. FAR has a 15% working interest, Cairn Energy has a 40% interest, ConocoPhillips has a 35% interest and the Senegal state oil company, Petrosen has 10% free carried interest in the offshore Senegal project. The world class SNE-1 oil discovery was the largest in the world in 2014 and the joint venture (JV) is now finalising arrangements for an active appraisal and exploration program as part of an accelerated development plan. The JV is planning to drill two wells to appraise the SNE field that are aimed at progressing towards proving the field is at least 200Mbbls and therefore meets the threshold economic field size for a foundation project, starting early in 4Q of 2015. A third well will be the first exploration well to be drilled in the blocks following the discoveries in the FAN-1 and SNE-1 wells and it will be drilled on the Beatrix Prospect and aimed at building the resource base within tie-back range of a hub development over the SNE field. ConocoPhillips has contracted the drillship, Ocean Rig Athena, for the three wells in the upcoming drilling program.
Beatrix Prospect is a significant size and has been assed as having a high probability of success. The Beatrix Prospect has been assessed by FAR to contain 168 million barrels (Mbbls) of oil on a gross, unrisked, prospective resource basis with 25Mbbls net to FAR. After the discovery of the nearby SNE field on the shelf, FAR has attributed a 49% chance of geological success to the Beatrix Prospect but it is noted that the Operator has applied an 80% chance of geological success to the prospect. FAR is encouraged by the presence of a strong seismic amplitude anomaly over the Beatrix Prospect, noting that a strong seismic amplitude anomaly also exists over the SNE field, where it is a strong indicator of the presence of hydrocarbons. It is also worth noting that the size of the SNE discovery on the shelf significantly exceeds the size of the pre-drill estimate.
Offshore Senegal discoveries still regarded as very significant and area seen as very attractive despite current weak oil price. The size and quality of the two outstanding oil discoveries in offshore Senegal by the FAR-led Senegal JV in 2014 means the area is still an extremely attractive one in which to make further discoveries, despite the current weak oil price. The JV is focussing its attention on the shallower shelf edge discovery and potential around SNE-1, where its assessments indicate there is a gross mean risked resource of over 1 billion barrels of oil. The Operator believes the SNE field can be economically developed to become a significant field at oil prices down to US$35 – 40/bbl that is capable of initial output of about 100kbbls of oil per day in a stand-alone development that could deliver first oil within about six years.
Investment thesis – Speculative Buy: Valuation $0.26/sh. The planning for the appraisal and exploration program in offshore Senegal is now well advanced with two appraisal wells and an exploration well confirmed and drilling set to start in early 4Q 2015. We continue to believe that the market is really overlooking the significance and value of the Senegal oil discoveries. FAR is very well positioned to have significant value added to its share of the value in the two substantial discoveries made in late 2014 by this next phase of drilling that will not only give added certainty and help quantify the extent of the SNE field, but it could also increase the size of the oil and gas resources in the shallower shelf area.. We retain our Speculative Buy recommendation.
FAR Price at posting:
6.5¢ Sentiment: Buy Disclosure: Held
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