Hi all,
we are probably reaching a pretty high degree of transparency in the value of FAR for parties interested in getting exposure to Senegal and Gambia. In case the rumors are true that Cairn is in the process to sell its complete Senegal stake in SNE, every major will have been in the datarooms and will be able to evaluate the 2 most important pieces in FAR´s portfolio SNE and Sama. Peter Strachan has given his opinion on the value of Sama to FAR.
This transparency removes a lot of uncertainty in decision making.
FAR currently offers the opportunity to get 90% of SNE and adjacent discoveries plus 80% of Sama plus a large set of undrilled high quality prospects. My assumption is that the preemption right in Senegal is valid and can also be applied to Cairn´s stake in SNE. With it then comes the operatorship in both cases.
What makes the situation even more juicy is that in case PE is applicable the COP stake in SNE will be available at a serious discount to current market valuation after a lot of successful exploration results. Some legal departments and external lawyers will be hard pressed to deliver their opinion on the chance of success (COS) of FAR´s PE arbitration. When the 75% COS mentioned by FAR are correct this is fairly certain.
In the situation which is currently developing I see a very high likelihood for a TO bid for FAR rather sooner than later. A low ball offer will almost certainly be outbid by competition.
In recognition of this situation FAR has obviously asked RISC to not only evaluate SNE but also Sama, It is logic to place an independent valuation in the market to set expectation´s right.
I think we are at a decision node in the time period up to X-mas where the following decisions will be made:
From a suitor´s/major´s point of view I would not let the Sama stake be farmed down and probably lose the operatorship in this process and the majority stake (unless they themselves buy the stake). I would rather keep the stake including operatorship and control a farm down myself.
At year end performance contracts of many CEO´s will need to be fulfilled and will be reviewed accordingly to set bonuses. Many will have reserve replacement targets to fulfill. After 2 years of serious reductions in exploration spending in 2015 and 2016 this target will be very prominent on many agendas. Add the cheap money which is available at the moment and the decision is not difficult where to put the money
. WPL is certainly in this camp. In my view this
WPL will also have to make the decision whether they want to stay in the game. Taking FAR´s assumption their COS of staying in the game is 25%. Pretty low when you have targets to fulfill. The only way to gain certainty is to make a TO offer for FAR. I am pretty sure that WPL has a bid prepared and is able to react on short notice in case someone else makes a bid or when arbitration develops against them.
COP management may have the target to sort this situation out until year end to remove uncertainty.
There are probably quite a few more important decisions to be made until year end but I think those mentioned above carry a lot of weight for some people.
I am also pretty sure that FAR has been contacted by a few companies privately firstly with the question whether they would consider to PE in case Cairn sells out (assuming rumors are true) and secondly where their price is for an agreed TO bid.
In my evaluation FAR´s management has done a tremendous job to put us in this position where I expect someone to make a move soon. Congrats!!
Cheers
R1
(20min delay)