AFR Article..
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Equity raising 'last piece in puzzle' for FAR's Senegal oil project
Angela Macdonald-Smith
Senior Resources Writer
Dec 10, 2019 — 5.21pm
An equity raising is the "last piece of the puzzle" for FAR Ltd to begin construction of the $US4.2 billion ($6.2 billion) Sangomar project in Senegal that will make the junior oil and gas explorer one of the ASX's largest oil producers, says chief executive Cath Norman.
Woodside Petroleum, the operator of the Sangomar joint venture, is targeting a go-ahead for development by the year-end.
Under the development plan submitted by Woodside to the Senegal government last week, the initial project involves the development of an initial 230 million barrels of oil, with production starting in 2023 at a rate of up to 100,000 barrels a day.
The SNE discovery in Senegal was the world's biggest petroleum find in 2014. Supplied
Ms Norman said the equity raising, taking place on Tuesday, along with $US350 million of senior debt and $100 million-$150 million of mezzanine financing, meant FAR could confirm to the operator that it has funding in place for the development.
The details of the equity raising have yet to be confirmed, but according to The Australian Financial Review's Street Talk column, it is expected to involve a $146 million conditional placement and $30 million share purchase plan priced at 4.25¢ a share, after being downsized from an earlier targeted share sale. The expected price is about a 12 per cent discount to FAR's average price in the past five days.
The shares were halted from trading on Tuesday after closing on Monday at 5.4¢, giving FAR a market value of $339 million, much less than its fellow overseas partners in the joint venture, Woodside and London-listed Cairn Energy.
The cost to FAR, which has a 15 per cent stake in the project, is put at $US492 million including contingencies to reach the beginning of production. Ms Norman said the funding package would involve towards 80 per cent of debt and the rest equity.
Funding the development was always seen as a big task for FAR given its small size and the partners were originally expected to put in place project financing for the development.
However, an ongoing arbitration process initiated by FAR over Woodside's entry into the venture in 2016 is said to have complicated that process.
Still, Ms Norman said that was not a key barrier to project debt financing, noting that banks that did due diligence on that were participating in the senior debt consortium.
Cath Norman says an equity raising was always part of the plan to help fund FAR Ltd's Senegal oil project. Peter Braig
"The terms we were looking at [in the project financing] were more expensive than the terms under which we could secure our own senior debt: that was one of the reasons for us not going down the project finance route," she said.
A ruling from the International Court of Arbitration on the case, where FAR is arguing its pre-emptive rights over the stake in the project sold to Woodside by ConocoPhillips were ignored, is due by December 28.
Ms Norman rejected the suggestion that the arbitration had posed problems for FAR in funding or for the project more broadly.
In the meantime, Ms Norman takes pride that FAR has been able to take Senegal's first oil project through to this stage from the initial offshore discovery. To have drilled 11 successful wells in a country where no deep-water drilling had ever taken place, with no failed wells, is "just phenomenal", she said, noting that Sangomar has gone from first discovery to a final investment decision in just five years, with another three until "first oil".
The project should deliver FAR some $US180 million a year of free cash flow after financing costs, which Ms Norman signalled should enable a "healthy dividend" to be paid to shareholders as well as funding further exploration off West Africa.
(20min delay)
