Patterson's says its "A Smart Acquisition"... FAR Limited (FAR)...

Patterson's says its "A Smart Acquisition"...

FAR Limited (FAR) - A Smart Acquisition. Rec'n: Buy, Price Target: $0.13/share
FAR Limited (FAR) $0.078
Recommendation: Buy
Analyst:  Cam Hardie   Tel:  03 9242 4153

Event

• FAR has acquired an 80% interest and operatorship in two exploration blocks (A2 and A5) in The Gambia from NYSE-listed ERIN Corporation.
• The Blocks are located to the immediate south of FAR's SNE discovery.
• The farm-in will be funded via an upfront payment of US$5.18m and funding up to US$8m of ERIN's share of the cost of an exploration well, with the well expected to be drilled in late 2018 following 3D seismic reprocessing and interprestation to be undertaken in 2017.

Impact

• This is a very astute, smart acquisition. If anyone knows this area well, it is FAR, as it was one of the early entrants in to the region and it was the one that brought Cairn Energy and ConocoPhillips in to SNE back in 2007. One of the golden rules in exploration is to secure the trend around a discovery, and FAR has now done this around its SNE and FAN discoveries. It has already identified three potentially drillable prospects and leads in the new Blocks, the closest of which is Sama which lies approximately 1 km to the south of SNE. We would expect this prospect may have a similar chance of success (60%) as the Sirius discovery to the immediate north of SNE.

• Funding. We expect FAR and its JV partners in SNE will want to drill more wells than VR-1 (currently drilling) and SNE-6 (to be drilled following VR-1) in the current drilling campaign which, together with this proposed well, will result in FAR being short of cash. However the 80% equity position in A2 and A5 gives it plenty of room to farm down an interest before drilling, so FAR could, in turn, be carried on the well.
• FAR's share of the cost of the exploration well is expected to be in the order of US$25-$30m.

Cam Hardie
Resources Analyst