"Risk to the upside", page-8

Hi H

Good post again, H. You have the knack of refocusing us when angst starts to take hold.

"It's a bumper, and more to come." - CN, January 2016.

I copped a bit of flak at the time for over-analysing the use of the word 'bumper', but I stand by my observation that it was a quite deliberate and extraordinary adjective to use - particularly pre-SNE3 and BEL1. Cath would, though, have been aware of the RISC assessment of SNE1, even if it were preliminary at that stage. (And has RISC looked at FAN?)

We are entering a critical juncture for FAR on several fronts.

The OP is volatile to say the least, swinging 10 per cent or more in a couple of days based on nothing more than second-hand accounts of what one or other oil minister might have said. The key observation from our viewpoint, though, is that just like SNE, the OP risk is on the upside. Maybe not in the short term - it might well yet touch $20 - but certainly in the medium term. Just look at how quickly the shorts are scrambling to cover on the whiff of a production deal.

This is important not only for our immediate SP, but more critically for our long-term ambitions. In three or four weeks, we should have JV-sanctioned updated numbers for SNEs 2 and 3. They will not be small increases. At this point, if we are not so already, we will be on the radar of every major oiler on the planet. You can bet that more than one will have designs on Senegal (I include COP in this). At some juncture, bids will be made, but here's the critical point: Not until the big boys judge the OP has begun a sustainable recovery. At that point, they will be in for a penny, in for a pound quick-smart. They won't want to be bidding for valuable assets in a rapidly rising OP environment; they'll want them on the cheap. If I lose any sleep over our current SP it's because of this factor.

Without dragging out a point I made the other day, we also face a fork in the road with funding. With a fourth well funded, do we raise more capital in anticipation of the extra three-well program? or do we cash in our chips? IMO the Board is setting up for either scenario - the ongoing RISC analyses - and will make its decision nearer the 'must go' date (which might be as early as six-to-eight weeks away).

I hope we raise again. Our SP can hardly be in poorer shape given the results to date; why not hang in there and prove up a greater portion of what is looking more and more likely to be one massive oilfield of several hundred square kilometres.

I remain incredibly optimistic. Most of the OP pain has been inflicted. The paper-shuffler traders are hanging by their fingernails every time recovery looks imminent. Our drill bit just keeps coming up trumps (come on, Bellatrix - you can do it!). The seismic work proceeds, so our prospective resource number will be much bigger in a few months time. And all the time the clock is ticking for those majors looking to score cheap assets.

The longer we keep it ticking, the greater the prize.

OOO