FAR Options

Thought I would start a new thread discussing what people believe to be the options available to FAR management going forward.

All I ask is that anyone disputing anything discussed here provide detailed reasons and not the one liners that some oxygen thieves are renown on here for. If these so called people post the one liners it is better to ignore the post and not comment. Half the problem with the threads on the FAR forum is that people respond to these people and the ongoing banter ruins the thread. As I said, just don't comment on posts that provide one off comments that shows little or no research into the comments. Most of the time these comments are made to induce a reaction. I am going to shock some people and state that GO is not one of these people as he/she always provides reasons behind their comments even if we do not agree with them.

I'll start with what I think is the best option.

I have never been a fan of companies going into exorbitant amounts of debt for the exact reasons playing out now. Just imagine if this was 2023 and FAR owed US $450M at 10% to 14% interest! The outcome would be that they would go bust. Hopefully FAR management having now seen two Black Swan events in 12 years will start to think that they had rocks in their heads going down the path they have the company pursuing and that Lady Luck has given them the chance to seriously think about their current plans and look at options that significantly reduce debt.

Noting that Petrosen have not utilised their back in rights then FAR should sell 9% of Sangomar and keep 6%. Sangomar stage 1 & 2 including gas has a 2c resource of 540mboe. FAR's 15% equity would mean that FAR has a 2c resource of 81mboe. The sale of 9% at say US $2boe would net FAR US $97M (48.6mboe x US $2). Assuming that WPL can reduce the capex cost by 17.5% for the entire project as they expect for year one then FAR's capex would reduce down to US $210M. The cash currently held plus the cash from the sale adds up to US $187M so FAR would have enough cash to see it through to the last half of 2022 where it could look at methods to raise the short fall, whether it be debt , hedging, capital raising etc. Using FAR's NPV calculations of US $650M at first oil then the NPV reduces down to US $260M or AUD $416M. That gives FAR a sp of 4c. On 6000/bbl production at US $65/bbl that gives FAR earnings of US $77M or AUD $124M (62.5c exchange rate). FAR would be priced in the market on its price earning ratio. Being a one operation company then maybe a PE of 5 may be fair. FAR could potentially be priced at 6c on a PE/5 down the track. These calculations only get better if recovery rates increase, FAN/SNE Nth appraisal wells are successful and drilling in Gambia is successful.

One thing to note with my calculations of NPV. I do not claim to be a guru at NPV calculations and admit that FAR's US $650M was used for 13.7% equity which included US $450M debt. I did a simple calculation of dividing the US $650M by 15 and then multiplying by 6.

If Petrosen exercise their back in rights then FAR's equity drops from 6% down to 5.48%. Capex would subsequently drop from US $210M down to US $192M. FAR's earnings would drop US $6M per year down to US $71M (AUD $113M). NPV would reduce to US $237M (AUD $386M). FAR's sp at the end of year one assuming sale price of oil US $65/bbl and PE/5 would be 5.6c.