Morning All
Thankfully, the discussion over the past couple of days has restored some equilibrium to a forum that had become more of a bore 'em. Thank you to our quality posters.
Mostly, and understandably given the prize at stake, mostly we have discussed PE and its ramifications, good or bad (hit or miss). Some have even speculated that missing PE could spell disaster. Whilst I agree it could certainly create short-term havoc, I reckon disaster talk is alarmist. FAR is far from worthless in its current state.
So just what are we worth? And what might we be worth under various scenarios?
I am a lazy researcher, preferring to rely on memory of past reading, so the following analysis is a little simplistic but I think robust enough. It starts from the current SP and assumes the following:
> A2C at SNE of 640m barrels
> An AUD to US exchange rate of $1.33
> 4.5 billion shares on issue - ie no further CR
> A base resource value of $US2.20, representing what in a best case is a distressed seller and in a worst case a fraud
> A (I think) more realistic value of $US6.00 at $50 oil and $12.00 at $70 oil (FAR's assessment of NPV).
> A value of a rather paltry two cents per share ascribed to FAN, GB, Djiferre, Kenya, cash etc.
Base Case
This assumes the next two appraisal drills fail to add any value, which IMO is highly unlikely.
Easy then - it's basically the current SP. 640 x .15 = 96 x 2.20 x 1.33 = $280m / 4.5 = 6.2 cps. I still say add on the other two cents = 8.2 cps.
Base Case Plus
Assume the $2.20 COP sale price is ridiculous. For heavens sake, it costs $4.00 a barrel to find the bloody stuff. FAR estimates a NPV of $US12.00 at $70 oil. Am I right to recall a figure of $6.00-odd at $50? Anyhow, it seems about right and will very possibly prove the best estimate given the unlikelihood (IMO) of a production cap resulting in a price much higher than fifty bucks. At $60, we'll be deafened by the roar of rigs mobilising across the U.S. So ...
96 x 6.00 x 1.33 = $766m / 4.5 = 17 cps plus two cents = 19 cps.
96 x 12.00 x 1.33 = $1532m / 4.5 = 34 cps plus two cents = 36 cps.
Appraisal Wells Double Resource
Those Chinese whisperers say this is the hoped-for outcome. It would result in a lift in 2C to approximately 1.3b, doubling FAR's share to 192m. Now the arithmetic gains grunt. Even COP's $2.20 sees most shareholders well into the black.
192 x 2.20 x 1.33 = $549m / 4.5 = 12.2 cps plus two cents = 14.2 cps
192 x 6.00 x 1.33 = $1725 / 4.5,= 38.3 cps plus two cents = 40.3 cps
192 x 12.00 x 1.33 = 2995 / 4.5 = 66.5 cps plus two cents = 68.5 cps
PE Succeeds
Who knows? Seriously, it's pure guesswork, isn't it. How much of the 50% would FAR retain? Would it in fact win the full 35% or might a compromise deal be done? How much cash might FAR acquire for a part-sale? We really are in the realms of the unknown. Suffice to say, though, that FAR would be valued at well in excess of the numbers quoted for any of the above scenarios.
Even in my lowest moments - and goodness me, doesn't following FAR produce a few! - I can't bring myself to join the "we're all rooned" brigade. IMO the market is currently valuing FAR in the most pessimistic way possible; we are just a few pips above COP's $2.20 for the current 2C and there is not one more barrel of oil factored in. So the market is saying FAR could spend the whole of the $50m it has at bank and not find another barrel of oil. Really? (And yes, I'm ignoring a discount for the possibility of another CR. I did say this was simplistic.)
Does anyone here seriously believe FAR will fail to add to its current resource base? Or that there will not be a single oil company on the planet prepared to pay more than $2.20 a barrel for a couple of hundred million barrels. I will postulate that big oil would happily stump up four bucks for light crude under textbook reservoir pressure. And that there'd be another standing behind it with a five buck note.
Don't get me wrong: I'm bloody well cheering for PE to come off. But I won't be rushing to the cliff's edge if it doesn't.
OOO
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