Given I am in NZ on holiday but waking up at the same time as I do in Adelaide relatively (5.30am), with it now being the equivalent to 4AM ADL time, a super early pre-morning report for you all today. I am guessing there is a couple people waking up and checking HC given yesterday's events.
The first thing I had to do this morning is recheck our results and I am pleased to say I didn't dream yesterday, although I did obviously get a little too excited given the number of posts. I have been dreaming of what occurred yesterday for some time. What may appear to the casual observer a small step in FAR's progress is to me a giant leap of epic proportions. Santa arrived a little late, but boy what a present!
The SNE-ball effect I referred to yesterday should explain as to why I believe commerciality of SNE at such an early stage will be very significant to us all. Being able to tie-back leads and prospects which currently total 6,686MMBLS un-risked, or the equivalent of 3.7 times the size of the final Jubilee 1.8BBLS PRMS total puts the size of the Senegalese find into perspective. Bear in mind that at an early stage the Jubilee find was only 370MMBLS, at not to far progressed a juncture from us currently.
(At the risk of repeating myself (as I often do) this is using our tight hole numbers and is obviously pre the update and re-rating we will see post the SNE-3 find which will add significant size to SNE alone. And doesn't include what I will believe will be a significant rerating of the FANS, don't forget the FAN's).
So at 3.7 times Jubilee at this stage, or 18 times the 370MMBLS total. I need to revise the significance. Kosmos a small start up company formed with $300M USD (sound a little familiar size wise) to hunt Elephants post the Jubilee discovery were offered $5B for their 23.4% stake in the Jubilee project. (they did have other assets, but in reality all reports point to this being an offer simply for the Jubilee stake). The price of Oil at the time of the offer was $85 USD per barrel. 23.4% of the P50 number was a 86.58MMBLS share, or using the 1.8BBLS number - 421MMBLS net to Kosmos, valuing the offer at $11.87 per barrel USD, or just north of the $10NPV that FAR were talking for SNE. Whilst Oil has significantly reduced over the course of the last year, with FAR's management claiming they can still expect offers valuing the find as though Oil was between $80 and $90 USD per barrel, I believe this could and should be a fair comparison. (Remember that 2010 wasn't that far beyond the GFC and the evaporation of a lot of capital).
So what am I getting at. Well this is where it gets interesting, we now have within tie-back 6,676MMBLS resources, (whilst under the tight hole policy, excluding the FAN's and the significant uplift we will see post SNE-3 once the Geo's have had the time to crunch the numbers and remodel the field). This puts our 13.7% stake inc the Djiffere block at 655MMBLS barrels net to FAR (un-risked - which I think has just taken in total a significant step towards de-risking), or at 1.5 times the size of Kosmos' stake of Jubilee at the 1.8BBBLS sizing.
Again so what, well with the Chairman's assertion that post the SNE appraisals we will have the world's attention, coupled with the statement - back in time that "post appraisals FAR is expecting a takeover offer of beyond $1", (well beyond). Relative to Kosmos' stake, we have 1.5 times their share of what they got offered $5B USD for!!. Or in AUD speak, an offer of $7B AUD. This would value FAR at $1.94 per share (at the value Kosmos were offered ignoring the fact we have 1.5 times what they had). (p.s Kosmos subsequently turned down the offer and went on to float at $6B USD).
So to any naysayers, hopefully the above demonstrates in irrefutable fashion why I have been harping on around the holy dollar (or well beyond).
Keypoints;
- FAR believes they can attain a valuation in a takeover as though Oil was at $80-90USD p/barrel
- We are still under a tight hole policy (i.e these numbers and share to FAR will increase significantly IMHO).
- I ignored the 0.5 in the 1.5 times multiplier (of the size of our share of Senegal to Kosmos' Jubilee share) to diminish some of my well published exuberance (I am still surprised myself I was able to carry through). haha
Hopefully this underlines the significance of the giant leap in the SNEball in lighting up the whole basin and my ongoing fixation with FAR being able to attribute beyond a dollar in a takeover, which IMHO became a lot more probable as of yesterday's ANN.
Now onto the highlights from the ANN;
"The unconstrained flow rate from this single well will be higher (and possibly much higher) than 10,000 barrels per day".
In referencing the 3rd edition of the mining valuation handbook;
A good result at up to 8,000 and we hit beyond 10,000!!!
(As the equipment couldn't handle beyond the 10K) ) - pointing to the rarity of such pressures.
If reservoir pressure, porosity etc is continuous (i.e the field will produce at the same rate wherever the wells are drilled), the expected costs of production will be much lower
The announcement suggests that pressure, porosity etc is continuous:
- "SNE-2 has confirmed the correlation of the principal reservoir units between SNE-1 and SNE-2 and the potential for lateral reservoir continuity.!!!"
To achieve a commercial oil field at least 50,000 barrels a day should be produced, preferably peaking at 100,000 barrels per day
- Cairn has modelled production costs for a commercial field using up to 30 subsea wells to achieve that flow. Commerciality can now be achieved with 5 wells, and peak flows with 10 wells!!!
That implies a much lower cost of capital and lower operating costs - or a higher production field.
A good comparison can be made with a leading subsea oilfield off Malaysia, which required 20 subsea wells to achieve 100,000 barrels per day (implying an average flow rate of 5000 bpd).
(This field had reserves of about 400 million barrels but SNE is expected to book reserves of ~700 million barrels).
Development / Cost Analogues; Gumusut-Kakap, Malaysia Gumusut field was discovered in Malaysia’s deepwater Block J in December 2003
Discovery well drilled in ~ 1,000m of water,
6 subsequent appraisal wells (including side tracks) followed
STOIIP ~ 1 bn bbls
Reservoir depth 2,800-3,200 m TVD, Reserves ~ 410 mmbbls of
38o API light oil
Production commenced in Nov 2012 using an interim evacuation solution to the Kikeh FPSO
Produced gas is re-injected into the gas-cap to improve oil recovery and help maintain reservoir pressure
Full field facilities (leased FPS) commissioned in 2013 / 2014 and peak production (> 100,000 bopd) expected 2015
Total wells ~ 20
Main development challenge – delay in construction of Sabah Oil and Gas terminal
So in summary the meat in the ANN can be summarised from the above. Commerciality is all but a shoe-in. The costs of development have just dropped significantly again.
Onto my routine updates
In terms of overnight trading;
We have CNE up 5.22%, with Brent sitting almost flat, COP down 0.43%;
A stack of detail around FAR here to any newcomers including broker reports - https://www.dropbox.com/sh/das9ex2wk07a3uf/AABMJ5n3zuCqvnNYhyhAG62ha?dl=0
be sure to have a look at the new CNE analyst report below if you missed it, the first I have seen to include the blue sky estimates around upcoming drills and also a stack of dialogue around the programme;
An exert follows, remember this is in USD, and with CNE having 40%, our 13.7% is roughly one third of the Net Risked Value, very exciting;
An update from Malcy's blog overnight;
So why the less than expected move on CNE?, I believe last night wasn't a great night on global markets - so expect some carnage across the wider ASX with China closing their markets yesterday after free-falling 7%. Reflected in the FTSE dropping 2.39%, or Energy widely down 1.51%;
Furthermore the CNE update wasn't exactly exciting!! (I believe CNE has done a sheet job of educating the local market as to the significance of Senegal and its upside. Qudos to Cath and team here.)
CNE's boring update from their site;
"Successful Senegal Appraisal Well
4 January 2016
Cairn is pleased to announce the successful testing of the SNE-2 appraisal well offshore Senegal with positive results. Operations have been safely and successfully completed following drilling, coring, logging and drill-stem testing (DST). The well is now being plugged and abandoned."
Malcy
As per the note from Malcy, I believe FAR is the geared play towards playing Senegal and across the board the to date valuation of FAR even with sheet POO, puts us in severe bargain territory.
Hotcopper
Thanks to the quality posts from Ya, Mandurah and JP as highlighted below in the HC homepage, FAR almost monopolises the top rated posts on the site as of this morning. I expect we will see our 11 Analysts promote the significance of yesterday's ANN today and a general flood through the media highlighting that FAR just took a giant step towards losing our training wheels and becoming a lot less speculative;
It is at this point, I sign off and am off to my Grandad's to finish painting his house (XMAS present) with a bluesky in Wellington at now 8AM local time (yes, 2 and a half hours to punch this out - albeit with a sore head. Red wine, beer and champagne - will I ever learn). Expect fewer posts from me today, there is nothing more for me to say except this;
A huge thank you to the management team at FAR, all shareholders and especially our top20 in particular FARJOY, your passion, dedication in this little battler and belief in Senegal has finally come a lot closer to fruition. Well done and I am sure you celebrated as hard as I did last night. Thank you personally for enabling my dream over the last 3 years to take a giant step towards reality, and for enabling me to continue to dream as we march towards $1 per share.
Have a great day.
Aqua xx
FAR Price at posting:
8.3¢ Sentiment: Buy Disclosure: Held
(or well beyond).
(20min delay)