Hi Hardmano et al., 3 months ago I said: "...(FAR) will be...

Hi Hardmano et al.,

3 months ago I said:

"...(FAR) will be pulling all stops to get a competitive bid process going which I hope is being coordinated with any possible/rumoured CNE sell-down."

And I cringed when CN pulled the cup out at 5.5c (but I took a few out of greed...not principle) and hoped like hell (not an advisable investment strategy) that she could bring a buyer to the party for the main game; there is absolutely no sense in selling share equity at these price levels....project equity or mezz are the only real options sub 9-9.5c. I think the recent media reports are very close to the truth so I've put together some thoughts...

1) CNE flagged some 2 years ago it would look to be selling down some interest so it makes sense for Far and CNE to join forces. But why now? The JV only now have the first order capital and operating costs with which to assess project value at a level of accuracy sufficient to attract buyers into this new jurisdiction. Another tricky bit has probably been getting the Joint Sale/Purchase Deed agreed and the nod from the Govt to go ahead.

2) The sale will not be pitched as a full sell-down but as a meaningful share to attract a major. I think the AFR's 'guess' at a 30% is likely to be pretty accurate. This would mean (under a typical JSD) that FAR would sell proportionally ((30%/55%)*15%) = 8.1818% and be left with 6.8182%.
But it may not be proportional and the JSD will have clauses dealing with the rights and conditions under which parties may elect to sell their x%. But the key right will be a party's right to accept or reject the final bid price. If rejected, the other party will have a right to sell a greater than agreed interest if it chooses.

3) Given FAR's heavy involvement in Senegal/Gambia and the still tepid market for ultra deep energy M&A, I strongly doubt FAR will sell down entirely.

4) The sell-down will be totally independent of the PE arbitration for two simple reasons:
a) Jefferies and CNE would never agree to the sale process being conditional or held ransom to a separate legal process that is indeterminate of time and outcome, and
b) read a) above again.

5) This'll take some time. If Jefferies (or others) have just been recently appointed, it takes a while to set things up and give clients DD time, requisitions and client's banks are notorious for always holding thing up. This'll be 2-3 months at best... and then any sale will be conditional on WPL's PE rights (love the IRONY here?) and Senegal approval. So all up, I'd expect any such transaction to be cleared by late this year (hopefully) but not in time for FID mid year.

6) Which is why FAR needed some very expensive folding money in the interim.

7) Jefferies (if true) raised my eyebrow. I dealt with them a couple of times 15-20 years ago but have lost touch with pretty much all of their people. But I note their energy business now has a very strong mid-stream focus...so they are not deep water up-stream specialists. But they are aggressive and just love to show up their bigger Wall St and UK competitors.

8) Its now about price. We all have our own thoughts on this but all I'll say is remember the buyer will never pay NPV10...they and their banks need a much higher RoR too.


Cheers,