With all the ongoing discussions about the volumes and values of SNE I thought to have a crack at it myself since some of my money is tight up in FAR anyway.
The assessment of the SNE volumes is based on the attached map below. It is extracted from the latest AGM presentation and does not reflect the outcomes of the SNE4 results.
I digitised the map to measure the areal extents of the segments used in my net pay X area calculations.
As you can see from the attachment below, I subdivided the SNE field into 4 segments. The yellow segment represents the heart and due to well control the geologically best understood part of the field. The extent is somewhat arbitrary and reflects the mid point between the wells and the SNE OWC marked by the green in the background and the purple segment. The yellow segment spans over an area of 218km2. The purple segment (green background area) measures 354km2. I use the yellow segment as my 1C area. It considers possible depth conversion issues that could limit the size of the field to the north and south. Thus I do not extend it all the way to Sirius and Soleil. As mentioned already the purple segment covers the area of the OWC as mapped by FAR before the SNE 4 results. The purple minus the yellow segment covers an area of 136km2.
The other two segments simply reflect the areal extents of Soleil and Sirius. Soleil marked by the green polygon covers an area of 34km2 whereas Sirius marked by the blue polygon covers an area of 84km2.
Each segment was then populated with geological input parameters (see attachment below).
Here are my justifications:
To calculate my volumes I used the segments as “Lego” blocks and added them accordingly to arrive at 1C, 2C and 3C volumes.
1C = Yellow 1C
2C = Yellow 1C + Purple 2C + Green 2C + Blue 2C
3C = Yellow 3C + Purple 3C + Green 3C + Blue 3C
So, where does this leave us with regards to volumes.
These are some pretty big numbers and as shareholder I do like what I am seeing However, as a geologist I must question them. And if I were to go into a data room being presented with these numbers, by nature my alarm bells would go off shouting “polished farm out numbers”. The one thing we have to consider here is that we are working with an incomplete dataset. The uncertainty is significant. One must also remember that some of the data provided to us is cherry picked. There is no net pay reported on SNE3 and SNE4 which is crucial for the way I did my calculations. For instance, if the net pay over the yellow area drops by 20% this wipes out ~300mmboe straight away and has knock on effect on the 2C and #C volumes.
These numbers are also way above the current RISC numbers which do not include BEL1 and SNE4. However, given the way they have handled their volumes thus far I do not expect their 3C to reach my 1C after the upgrade. So, is there something we are not being told? Is there a reason why the net pay of SNE3, SNE4 and BEL1 was not provided. Gordon Ramsay says that the RISC numbers are conservative. I thought so too initially but part of his job is to say that. Having spent some time looking at the field, I have a much better feeling for the sensitivities such as reservoir presence and quality and how they impact the volumes. At the same time I acknowledge the upside which I see in drilling towards Sirius This gives me a lot of confidence that we area looking at a 1000 mmboe+ field.
What is then a fair value? In light of the data set we were given to work with, a natural human positive bias towards the upside as I have an investment in FAR, and the fact that the RISC numbers are way lower than what I come up with, I’m happy to apply a “what I don’t know” factor of 0.75 to these numbers. Therefore:
1C = 1120 mmboe recoverable
2C = 1516 mmboe recoverable
3C = 2918 mmboe recoverable
These are actually numbers I start feeling comfortable with. The 2C number is representative of an average net pay of 20m over 354km2 (green background colour on map) with a recovery factor of 30%.
And here is the beauty in the latest CR. From SNE4 we know that the field is extending beyond the provided mapped OWC to the east. With money in the bank we can stay in the game to exploit the full value of the SNE field. For me this means drilling Sirius. In my calculations Sirius alone proves ~310mmboe, not to mention the additional volumes between Sirius and BEL1 locations. Additionally, the money gives us leverage in any negotiations. I have the luxury now to reject an offer at $50 oil price. I can go into 2017, drill two more wells and wait for the oil price to rebound.
With that I'd like to open the floor for any constructive feedback and criticism.
DYOR - I'm an exploration geologist, which means statistically I fail 7-8 times out of 10.
P.S.: I almost forgot. Senegal was linked to the east coast of US and not Gulf of Mexico
FAR Price at posting:
8.5¢ Sentiment: Buy Disclosure: Held
(20min delay)