farmout options / thoughts

I was looking at FAR's announcement today on the farmout they have sealed with Cairn Energy in Senegal. $90m covering $10m of back costs and a well carry up to $80m.

I thought I would see what impact this would have on RIA should they suceed in getting a similar deal.

So Cairn have bought 65% of the block which has gross prospective resources of 3.585bn barrels of oil. I have assumed that this is recoverable as its not immediately obvious on the slide but I suspect it is.

Cairn are buying prospective resources of 2.33bn barrels of oil then so essentially about 3.9c / prospective barrel of oil.

RIA have 897m barrels of oil in prospective resources in CI-202 and 2.936bcf in prospective gas resources. This essentially equates to around 1.386 bn boe of prospective resources on a gross base.

If we assume that RIA sell 50% of the block leaving them with a residual interest of 35% then using the same basis as FAR got (3.9c per boe)then whoever farms in would be buying 693mboe which would equate to a farmout cost of around $27m.

IF RIA have 35% remaining in the block then their costs for drilling the 2 well programme (assuming only a 2 well programme is undertaken - minimum PSC requirement) then their overall cost for the well is $23.4m (as they would have a 39% paying interest), so easily covered by the farmout, but would also increase the chances of a greater than 2 well programme. At 3 wells at $90m a 35% interest would cost $35.1m so having $30m in the bank with $10m payable by Petroci and that $10m essentially tied up for Starish, they could potentially end a 3 well programme with around $15-20m in the bank (accounting for SG&A costs) if they get a farmout along the lines of Cairn / FAR.

I would think that potential farminees could be Ophir / Afren / Tullow / Cairn / Genel / Lukoil probably as the favourites but there could easily be others.