Hi DB et al., Any sell-down will very most likely involve the...

Hi DB et al.,

Any sell-down will very most likely involve the whole package, but should await determination of the actual ring-fence. Buyers will put more value on resources/prospects contained within the development zone.

I agree with you that a sale of a single 5% interest wont have much appeal to many except maybe PE/resource/hedge funds. Most new entry majors would be looking for 15-20% (Total for example). Yet this can become a little complicated when looking to package the sell-down from 2 incumbents who not only have to agree on a price but also assist the buyer get through pre-emptions and approvals (easier said than done).

But my point was not that I thought a 5% sale is what could actually happen, but rather a very neat example to illustrate the cross-over SP point at which project equity is better/worse than share capital equity (given an assumed project sale value).

Project financing a large deep water project in a new country with untested industry, regulatory, fiscal, corporate and legal frameworks and history is tough...even for majors.

The corporate banking and credit world (with respect to oil and gas) really got slammed hugely in 2014 with the price crash and pretty much closed shop until 2016 as they worked they way through the huge queues of chapter 11/defaults and write-offs. The banks and their credit committees and agencies emerged very gun-shy and tightened all of their lending criteria. Pre-2014, SNE could have had Loan/EBITDA of 4x and Loan/capital of 75% (and that's just for senior debt). But now its Loan/EBITDA of 3.0x and loan/capital; of 50-55% (for all secured debt).

RBL (reserve base lending) was getting some real traction prior to 2014 but this got hammered more than straight loans with the crash in prices and really stuffed around with banks capital ratios. As such they are now less competitive (especially with a flatish forward curve) and the senior debt providers will now secure all the PDP & PUD available leaving RBLs to consider deferred access (security only after senior debt paid down 50+%). I'm sure the corporate finance teams will try to cross-sell an RBL option if the risk and additional 250-450bps work out but I'd be surprised if there will be sufficient room (security-wise) for any material RBL component.

Another very worthwhile mezzanine option are corporate debt notes yet FAR is likely to cop a huge margin (500-800bp)/libor unless they can sleave (credit enhance) it through a third party.

Point is, there are many options but its not at all an easy borrowing environment for a major, let alone a junior whose low equity price strongly suggests that project equity sale is a more logical option.

But FAR have a good team and they know all of this (and a whole lot more), so the package should be something pretty good, slightly left field. At a minimum, I'd expect a 3-4c uplift just on the clarity alone.

But we all need to see the approvals and BFS numbers first.

Cheers,