Where to now?, page-17

Rating OUTPERFORM*
Price (09-Nov,A$) 0.08
Target Price (A$) 0.14

No luck with Samo; price reaction overdone
■ A no with Samo: Despite pre-drill optimism, FAR’s Samo-1 well in The Gambia was unsuccessful, with the main target horizons water-bearing. No shying away from it being a disappointing outcome but for a well that FAR was effectively free-carried for and that, in our view, was almost pure option value, we’re staggered by the share price response.
■ Let’s focus on where the value is, SNE: FAR’s SepQ-end net cash position was A$36mn but let’s assume for simplicity that the market cap is the EV, or ~A$450mn (~US$325mn) given all cash will largely be used for exploration/development one way or another. Using Cairn/WPL’s 2C estimates at SNE (vs FAR’s which is ~80mmbbl higher), FAR is pricing in ~US$3.90/b. The value the market is ascribing to FAR compares to – 1) total JV sunk capital to date at SNE of ~US$950mn (100%), 2) stale capex + opex indicative guidance of ~US$25/b for the SNE development, and 3) a current oil price of ~US$70/b. We try and avoid whenever possible throwing the baby out with the bathwater but at these levels if the market won’t recognise SNE is a real project that is progressing towards an investment decision and FAR is an inexpensive avenue to get exposure to SNE, then some other party may very well do so.
■ Catalysts and Risks: SNE FEED entry targeted for the end of 2018, FID in 2H19, first oil 2022.
■ View: No change to view despite the disappointing outcome from Samo. There are still a lot of hurdles to clear to reach FID (full approvals, funding locked away, successful FEED program etc) and no escaping that the risks to FID timing are for it to be reached later than earlier in our view. All that said, at ~8cps we’re comfortable that the Samo result is far from a game changer and if anything creates opportunity for investors willing to take a longer term view.