How could I not break my self imposed HC sabbatical for this?? Some 600+ posts since yesterday am!!! My observations/comments:
1) Firstly, I'm am both staggered and furious that Cath and Gordon somehow concluded that the WPL announcement would NOT materially affect the market and allowed the market to trade without any comment from FAR. It was a major stuff up on their part; idi*ts.
2) Congats to the Corporate lads and ladies at WPL...an amazing deal. They know that these kind of opportunities only come around once a decade or more. Some on these boards may not be old enough to remember (or have been born at the time!) but the most transformative time in WPL's history was when they very tenaciously fought to hold onto the operatorship of the NW Shelf project when under pressure from BHP, Shell and the other heavy weights back in the early/mid 80's. They just love getting the operatorship of any project and now they have it (well maybe....see point 10 below)
3) COP has US$23B of debt and is under great pressure to improve their balance sheet. When Big Oil make a strategic decision...its not about price...its about action. So COP were never hanging out to maximise any offers; it was all about getting out of deep water exploration. And we all know what great deals Big resources leave on the table....
4) Dont get caught up in the Jan 1 effective date. It has no connection to the pricing or resources at the time. It is very typical of pretty much all US (and many international) deals to make them effective to the last reporting/audit date.
5) I am also dumbfounded that Cath and Gordon didnt have a better prepared plan for this (at least overtly). We all knew COP's interest was going to get sold. We all knew there were pre-emptive rights. We all knew FAR would have an opportunity to match a bid for their additional share (at least 9.545%). This has been on the table for at least 6 months and during this time FAR coulda/woulda/shoulda lined up potential/possible financing from many non-bank sources (banks unlikely to touch this pre 2P reserves and DFS). Yesterday's announcement just doesnt give any hint that they were in any way prepared for this inevitability.
6) Assuming 5) is true, then they are now scrambling to find financing options for at least the 9.545% at US$12.268/% = US$117.4m...but probably more as it is unlikely that CNE will stump up any of their share (25.454% for US$312.7m). So they now have between 30 and 90 days to come up with a matching offer.
7) On the basis that CNE are not in, FAR will need a Big Oil daddy or consortia. The 2 carrots that they can offer are a) no bidding competition and b) the Operatorship. This is very attractive and I believe will flush out more interest.
8) In effect, WPL have shown their hand and the pre-emptive rights are the only risk here. This actually gives FAR some negotiating power. I am sure they would have already talked but now FAR can go to WPL and play the game of "what is it worth to you for me NOT to use my pre-emptive?"...and WPL will be expecting this.
9) A key unknown here is how the Operatorship resides within COP's interest. COP negotiated with CNE to get it but CNE/FAR would not have let it go without conditions and a typical one is maintaining a minimum % JV interest. So the question is...'does the operatorship still reside within COP's interest if FAR exercised its 9.5454% (or greater?) percent?
10) In other words....could FAR actually wrestle the all important Operatorship out of the sale interest?!?!! If so then FAR's negotiating power just doubled. This is a long shot....but hell, its important.
11) Given FAR is (very likely) scrambling for funding options, there is now greater pressure to release not just an updated RISK report but a 'really good' one (if you know what I mean?). Our ever optimistic Whitenoise may get some early validation!
12) I agree with some here like Phillip321 that we will not see a bid for FAR. We could possibly see FAR 'negotiate' WPL into taking a 20% placement at a massive premium (20c?). This would be about a 31% premium to secure no contest to WPL's bid and puts a foot on an additional 15%. This is actually pretty reasonable and doable in my experience.
13) For all these postulations to have any credibility, FAR must first and foremost put a credible and real funding/consortia package together to get WPL to the negotiating table. I recon they have less than 60 days to do it and they'll only have but one chance to ever do it and this is it.
14) I would expect them to bunker down and not return phone calls until they are ready....a month maybe? But when they do say something, I recon its going to be big...real big.
Cheers,
FAR Price at posting:
7.7¢ Sentiment: Buy Disclosure: Held
(20min delay)