The Word According to FAR

Hi All

With our discussions spinning around the plug hole in ever-decreasing circles, I decided it was time to dust off my old FAR meeting notes to see what the Company has actually said about its plans for SNE. I include some other pertinent tidbits.

I won't draw any inferences from these statements; I simply report what was said and leave it to your fertile imaginations.

AGM 2016 - Chairman Nic Limb

All I'm interested in is increasing the SP. It largely mirrors Brent and it drives us nuts.

SNE in detail is complicated and it requires a lot of money and work to understand its shape and deliverability. There is a wide of possibilities over the next 12 months and we need to plan for all scenarios. We need to plan to be able to change direction without stressing.

We are completely confident DOC will be declared.

Nic Limb, AGM 2015

We would prefer not to dilute our percentage (of SNE/FAN) from here, in fact if more rights come up we will be looking to take them.

Nic Limb, AGM 2016

SNE development costs are estimated at $US5 billion. We have many more funding options but farming down is something we won't be doing.

Finally ...

I said I wouldn't comment, but it got the better of me.

If our Chairman and large shareholder is to be taken at his word, FAR is certain to exercise pre-emptive rights over the WPL bid. Hot estimates this would cost $120 million; Mr Limb says finding funding is not an issue. The worst case scenario for shareholders is an equity issue, which would dilute us by roughly a third but IMO would increase our ultimate returns by a factor far in excess of that. I'm not familiar with other forms of oil finance but surely some sort of bridging finance (forward sales?) must be available if, as seems possible, FAR owns nearly a quarter of a billion-plus barrels of oil in a market that four or so years out must surely see an oil price substantially in excess of 45 bucks.

Notwithstanding the trading halt cock-up on the morning of WPL's announcement, I'm comforted to confirm that two months ago FAR was running scenario planning for a wide range of possibilities. WPL has been bullish West Africa for a while now and I'm certain that with COP flagging its intentions to exit deepwater oil, a WPL purchase of COP's share would have been one such scenario.

Mr Limb told the 2015 AGM that FAR had to plan to go to production but not expect to get there. Since then, though, FAR has sounded and acted (FPSO inspections anyone?) like a Company fully planning to go the distance.

In short, like WN I anticipate that FAR's response to the WPL bid will take the form of an explosive announcement rather than a whimpering capitulation. I don't expect that to be WPL taking a substantial position in FAR. Don't forget that at the 2015 AGM we shareholders agreed to renew our takeover provisions to preclude a raider taking control while falling short of a takeover. "I'm happy to accept takeover bids but not to relinquish control," Mr Limb said. Not that WPL owning, say, 20% of FAR would represent control, but I suspect our Board would not be comfortable with the possibility that WPL could own a majority share of the oilfield as well as a large chunk of FAR's 24% of it. In those circumstances, we would surely want WPL to finish the job, wouldn't we?

OOO