Nice call Volf. Seems like some of your concerns are starting to...

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MikeMcDermott

81 Posts.

19

09/09/24

11:37

Post #: 75590365
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Originally posted by volf: ↑

I do not think there is great understanding of this contingent payment.

FAR are trying to sell it at a 20% discount rate, meaning the buyer would need to receive a 20% return per annum on their investment. If they sold it at that discount rate, what we would receive would be closer to $39m US.

However, this is a VERY risky instrument because it only pays out if the oil price is above US $70/bbl and if it goes below US $58/bbl, then you get zero.

There is also production risks, things can and do go wrong with offshore oil production.

Secondly, it is impossible to sell this at anything close to a 20 % discount rate and I suspect it would need to be 30 % plus with a higher oil price to get away.

It is also not possible to hedge out the oil risk using options because they are always going to be too expensive unless oil is $100+.

I do not think this is a sell but be very careful with portfolio weighting because should oil drop, it is possible we actually do not receive any payment and then FAR is a zero.

Add onto this, there is a small risk management does not return the capital.

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Nice call Volf. Seems like some of your concerns are starting to play out. I can't imagine they will be able to sell the contingent payment now given where the oil price is. Still watching from the sidelines on this one .......

FAR Price at posting: 48.5¢ Sentiment: None Disclosure: Not Held
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0 Great analysis

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