Re "Commercial?......Ask Cath what FAR's price assumptions are...

Re "Commercial?......Ask Cath what FAR's price assumptions are and disclose them here when you next mention the word commercial"

Hi Rolling
I take aqua’s point about oil companies basing their economic decisions on their opinion of likely future oil prices, but at the risk of being howled down, I kind of agree you might have a point here - FAR keep banging on about a 200mmbl minimum economic field size (MEFS) as if it were forever set in stone.

From Cairn’s Slide 55 MAY 2015 presentation (Brent oil US$60s) and also their August presentation (Brent oil US$ 50s).

“Current economic analysis focuses on standalone SNE development: commercial threshold using various metrics >=200mmbbls”

Despite the oil price now being around US$35, FAR apparently seem quite happy to keep reproducing this estimate of 200mmbls in the latest quarterly and still refer to it as “current”, as if it were completely independent of the oil price. Now it may well technically be current as Cairn have not stated otherwise, and one doesn’t know what the “various metrics” alluded to above by Cairn actually were, but these presumably included an internal forward oil price estimate used and accepted by the company. Incidentally by way of example "MEFS at US$60 oil" would be a lot more informative to the market wouldn't it (as in US$60 being the general forward estimate alluded to by aqua as being used by COP).

Should the current oil price environment persist like it did in the 1980/1990s though, it is hard to believe that any forward price used by Cairn is fixed in stone forever and never to be subject to internal review.

In any event, achieving the MEFS milestone may make 200mmbls "bankable", but this surely only a "next step" in a long process of commerciality determination for the project as a whole, and as such my oft stated view is that the market already has 200mmbls well built into the share price.

It is not the same thing, I think, as the “declaration of commerciality” which many seem to be hoping for and which would come much later in the piece and be based on the companies future view of forward oil prices at that time? And by the time they announce that, it is likely that sufficient will be known by the market to have already built that into the share price based on reserves/resources established by that time.

pj