After the poor result of Samo we are, as cujo pointed out, largely back at square one. Although square one is a fully appraised world class oil field so it could be worse.
So where to from here? Who knows, but I will be holding for the next month or two until the dust settles and will then reassess as part of my normal process. I believe the stock is greatly undervalued at current prices due to the underlying value of SNE.
The pressure will be on Cath to navigate a path forward on financing, shorter term cashflow, Gambia/Erin, PE and getting the market to realise the value of SNE.
SNE
- Exploitation plan should be approved by 25 January 2019, it would be positive if this was approved prior to year end.
- Entry into FEED should occur once the exploitation plan is released
- Cairn are targeting FID during 2019
- JV project financing should have been formally launched by now, refer to Cairn statement in September " The joint venture in the project is moving forward. We’ve been working together on preparation for project financing and we continue to plan to launch next month after the exploitation plan has gone in."
- Theoretically as SNE grinds to production 10% of value is added to the existing value each year due to WACC and time value of money
- A further 3D may be shot over the prospects in 2019 (refer Cairn Presentation 11/9/2018), this would likely be used not only for SNE development purposes but also firming up the Spica prospect, FAN potential and other drilling prospects.
- Cairn have pencilled in two exploration wells in 2020 as part of the SNE Development process, these wells would likely be Spica and FAN related "Opportunities: FAN pre-development Spica exploration"
Gambia
- Will be very interesting to see what happens now, the JV have been granted a six month extension (to 30 June presumably) and are planning to drill a well 'next year'. In the absence of any other prospects it appears Saloo/Bambo will be drilled.
- I assume FAR will farm down again, hopefully for some form of a carry.
- If FAR truly believe that SNE extends into Gambian waters then I would be happy for FAR to retain a higher working %, raise the funds and drill away. Gambia will surely want Saloo tested at some point due to the proximity to SNE.
- FAR have advised the two Saloo prospects and the previously mentioned Bambo prospect could be tested in the same well
- Any potential unitisation issues could only be a good thing for FAR due to its minor interest in SNE but higher interest in Gambia
- Thankfully FAR retained operatorship so is largely in control of its destiny in Gambia
- Who knows what will become of Erin's 20%, I will believe it 'is ours' when I see an ASX announcement.
Guinea-Bissau
- I expect FAR's 21% interest in GB to be farmed down to 10-15% for some form of a minor carry. These permits are firmly in oil country.
- A well could be drilled in 2019 and in the absence of any other prospects maturing I would expect the larger Atum prospect to be drilled
Kenya
- I expect no progress due to country issues
Western Australia
- A 3D is scheduled to be shot in Q1 2019, FAR have been keen to shoot a 3D for sometime over some quite specific areas of the acreage but due to environmental issues were unable to. It appears these issues have been resolved. FAR have 100% equity so would likely farm down enough to be substantially or totally free carried. If no farm down (and therefore no decent prospects) I assume they will relinquish the title.
PE
- TOR still appears to be unresolved
- A result before the end of 2019 is becoming increasingly unlikely
- Will be interesting to see this play out over time.
- I suspect PC is feeling some heat with his recent rhetoric of PE putting at risk financing of the project etc which was completely undermined by Cairns statements a couple of weeks later "In terms of the arbitration between FAR and Woodside relating to the previous sale of an interest by Conoco to Woodside, that is a dispute between those two parties, it’s at the side of the joint venture. The joint venture in the project is moving forward. We’ve been working together on preparation for project financing and we continue to plan to launch next month after the exploitation plan has gone in." and "The base plan is very much around the project finance facility that all four joint venture partners can participate in. And the preparation for that has been there's a subcommittee appointed which has been meeting very regularly, as I said work is well progressed in readiness to launch. And that is really a partnership of the government, the four partners and the bank and legal advisers that we’ve appointed. So it’s been all of those parties working together."
Capital Raise
Hard to see how this will play out with PE legal costs, SNE FEED costs and admin costs eating into the (approximately) $25million FAR will have at the end of December 2018.
A PE settlement (negotiated or determined) or some form of financing (as part of the SNE financing/) is likely to be required to avoid a capital raise although FAR could limp along for quite a while due to the minor interest in SNE. FAR will have planned for a failure at Samo so we will have to wait and see what happens now.
Takeover
FAR are as vulnerable to a TO as they ever have been IMO, although I still don't think a takeover is extremely likely. Woodside are the obvious candidate due to PE and also the Gambian leases (
if SNE does likely extend into Gambian waters, Woodside will have their own view on this).
CNOOC
So far the AMI has resulted in nothing, although I understand they have bid on a few leases to no avail as yet. The AMI finishes in March 2019 which is rapidly approaching.
Shareprice
My prediction is a retrace towards 9 to 10 cents from the current (what I hope is) panic selling. The underlying value of SNE is too big for the market to ignore but when will this happen is the million dollar question. The POO and broader markets will play their part as well.
Interesting times.
(20min delay)