UNREALISED VALUE IN FAR’S SNE DEVELOPMENT We initiate coverage...

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UNREALISED VALUE IN FAR’S SNE DEVELOPMENT We initiate coverage on FAR with a positive recommendation and A$0.13 valuation. FAR is an exploration company with prospective blocks primarily in deepwater NW Africa. FAR has a 15% interest in the SNE field in Senegal. This is the same field WPL acquired from ConocoPhillips for US$440m in 2016 (35%). Appraisal has confirmed a resource of ~74mmb (net FAR). CORE DRIVERS AND CATALYSTS SNE Development: SNE is likely to be developed via subsea tie-backs to an FPSO with first oil in 2022. Offshore Senegal has attractive fiscal and commercial terms and there is the potential for further development of nearby resources. In our view, SNE has the potential to be a globally significant oil project.  We value SNE at ~A$405m (FAR 15% share).  SNE could add annual oil production of ~4-5mmb and ~A$200m of EBIT from 2022 onwards.  When combined with other risked resources in FAR’s Senegal acreage we estimate SNE is worth ~A$0.11/share. In addition, we note FAR is strategically well placed in the area, having acquired an 80% interest in two prospective blocks immediately to the South of the Senegal blocks. CNOOC, Total and BP are all active in the region. Arbitration on pre-emptive rights: FAR has disputed WPL’s US$440m acquisition of ConocoPhillips’ 35% interest in its Senegal exploration blocks. FAR is seeking arbitration in the International Chamber of Commerce. A favourable ruling would add additional upside for FAR, but we do not include this in our valuation. Monetisation pre-development: It is possible that FAR partially or fully divests its interest ahead of development, or that FAR is acquired by a larger company. Rising oil prices: FAR is leveraged to oil price, and we expect oil prices to gradually rise to our long-term oil price forecast of US$65/bbl. OUR THINKING We initiate with a positive recommendation. We believe FAR has built an exciting portfolio and the value of its Senegal acreage is not fully reflected in its share price.