FAR (ASX) Why Far is Undervalued.

Originally posted by mandurah ↑

5.2B shares on issue @7.8cps. Approx 80m in bank @ 0.15cps. Current market value of entire portfolio 6.3cps x 5.2B = $$327m.

Assume 0.05cps or $26m for Kenya, GB, Aust, FANS, Gambia, & ... DJ .
5.8cps attributed to 2C to FAR {last upgrade} of 641mmboo @13.7% = 88mmboo net FAR.
$301m value given for 88mmboo or $3.42pboo.

Initial 2C for SNE has grown originally from 154m to 330m to 641mmboo...next upgrade imo should be up around the
800mmboo 2C, more so if Sirius delivers. Successful connectivity post 641mmboo upgrade plus other good results should
ensure extra barrels added plus improved recovery rates circa 17% previously advised. 750-800mmboo should be doable pre
Sirius results.

Assume 2C net to FAR then of 100mmboo @ $301m value currently ascribed. $3.01pboo valued, some of which will
be a mixture of 2P, 3P, 1C RESERVES come FID and the granting of a licence to develop the field.

NPV pboo quoted 2016 was $10pboo @ $50 poo with REDUCED Capex @$35 pboo BREAK EVEN cost for SNE oil.
Latest 2017 NPV $12.50pboo $ 70 poo, with reduced capex & $35 poo b/even AND at 2C of 473mmboo

I would say post connectivity & other good results we could see the b/even price down to $30 pboo for SNE, particularly
during Phase 1 500 series sands at big flow rates. I think it fair to say that with Brent currently @$50, a 2C possibly of
800mmboo, continued low drilling/development costs, a barrel extracted would represent $20 of free cash flow @$50 oil.
Exploration & development costs are recouped first before full tax/royalties kick in to my understanding. Good fiscal terms
anyway for First Movers in the area which FAR were, 25% corp tax rates I think with with reasonable royalties and standard
allowance for increase to govt "take", based on max production quotas.

Assume phase 1 @80 000 bopd from a plateau of 140 000 bopd {full field including
SNE 400 series sands}. Far’s share approx 4mmboo per year. $80m free cash flow
generated p/a @$50 oil.
Assume US$ 3B development costs for phase 1. FAR’s share = US$ 411m. So, $411m
needed to generate cash flow of $80m per year. Payback here looks like about 5-8
years depending on the POO at the time...if its closer to US$80 then only 2-4 years
payback, then 21-23 years of net income @4mboo per annum on Phase 1 only {minus
Taxes, royalties}. The smart way lies in how to fund the $411m without major dilution.
Some debt financing could come in based on our share of reserves post FID, we could
sell down or sell out of the RSSD or we could dilute. To raise $400m would take about 5B
Shares @10cps {say average} leaving us with 10.2B shares on issue. IF the SP is then
10cps then MC would = $1.2B. IF earnings phase 1 average $80m per year then that
would equate to $15x earnings. Overpriced @$50 oil.

The key imo is to sell out or sell down post FID, at hopefully a higher oil price, allowing us to sell at or above NPV’s put on on 1boo currently. 100mmboo Net to Far @$US 10. I have taken this
Price @US$50 oil, $411m development cost to Far, $30 break even price pbbo, 25 year field
Life. Of course our 100mmbboo would include phase 2 costs associated with developing the 400 series sands. Still, if you are buying a barrel from us @US10, at $50 oil, then you should still be seeing $10pboo free cash flow. Spending $1B to recover $2B in 25 years. Oil@ $70 would return $4B for 1B spent. So I see US $10 pboo for our 100mmboo as fair price should oil be at
$50pboo. You can’t find oil for less than $4-8pbb. And we’ll throw the FANS in as well.

We would realise about 19.5cps, with GB, Gambia, Kenya, Aust, DJ still in the portfolio.
Cash of $1B in the bank @ a SP post sale of 20cps. That’s almost a 3 fold increase in the
SP from today’s level. Or sell half and have 9.5cps cash backing & income on the approx 3.5mmboo Net share to Far, when plateau production of 140 000 bopd is achieved. $20
free cash flow pbbo @50 oil gives $70m income per year. At 10x earnings that’s
approx 13cps. So, 22.5cps on that revenue/sell down stream v about $19.5cps total
sell down. Assuming of course parameters are adhered to..$30 b/even pboo, $50 oil.
$70 oil could see $120m income generated per year @3.5mmboo to FAR @$35 free
cash flow pbbo. 10 x earnings would be 23cps plus cash backing of 9.5cps = 32.5cps.
Either way, it would be nice to poke a hole in Gambia A2 and hit oil, sell down half of SNE
@Fid for $500m and be fully funded for phase 2 of SNE and ongoing appraisal &
delianation of A2 Gambia.

Gambia could be the game changer for FAR, even in a weak/meddling oil price
environment. If 500mmboo target A2 is realised & FAR retain 30% WI then that’s
6mmboo per year for 25 years. Cost of development in shallower water, half the
Size of SNE field, continuing cost reductions in capex, should see about 2.5 to $US3B.
Far’s share $750-$900m to realise $1.5B in free cash flow over 25 years @50 oil.
Or, sell @$10 pboo NPV for $US1.5B, realising 29cps. Cash backing of 9.5cps
would be now zero {$500m being spent to realise SNE phase 2 & A2 Gambia}.
13cps still remaining in value from SNE 6.85% share. Take off shortfall to fund
Gambia to FID @5cps = $250m so 8cps + 29cps= 37cps -Gambia sold off completely
& a retained interest of 6.85% SNE remaining @$50 oil.
No reason why FAR cannot develop into a CNE down the track if it so chooses.
When you retain a % in a great project like SNE, it does offer the springboard to
not only ride the POO cycle over 25 years v the last 2 years, but provide an income
that allows the company to be mostly funded for future discovery exploitation, on
top of the $$ realised for a partial sell down.

So, @7.8cps now, we are undervalued imo to the tune of 12-15cps,should we
sell out of SNE/RSSD completely post FID. At $3 pboo currently ascribed to
our share of SNE, some of which will be in the 2P 3P category, that allows plenty
of room for a re-rate..finding oil alone costs $4-8pbb.

The “technical success” at FFS1 was more important from the perspective of
confirming the source of all this oil, especially in regards to A2. A 500m gross
oil column was discovered in FAN1 @29m net pay. 500m gross oil column
with no OWC, may be one of many lurking within FAN1 or Central Fan. That’s
a lot of oil and why 2.7Bbooip has been put on SNE by CNE, at an earlier juncture
prior to the latest round of work. Oil does not stop at a border marked on a Map.
A2 is only 5-15km away from the heart of SNE. will be keen to see if the oil has
migrated 15-20km away{north} in the now targeted Sirius prospect. After all,
FAN1 sits more directly below Sirius v SNE. Migration pattern should encompass
over -fill from Fan reservoirs up onto the shelf directly above the source as well as
a southerly direction as @SNE...onto Gambia A2. Oil should be found here, just a
question of the reservoir/traps imo. 67% COS by CNE based largely I would say in
connection to its proximity to the same initial source/charge for SNE. The sands
at Sirius are separated from SNE, so a lot has been put in store of that oil migrating
through different channels to the sands @ Sirius. As said before, oil now in FFS1
proves that source rocks are active under A2 {30km from FAN1}. Similar migration
patterns to FAN1 as well as a 2nd possible migratory channel from FAN1 source
should see the sands/traps at A2 waiting for a shiteload of oil, hence the 500mmboo
recoverable put on its prospectivity.

I expected a quickening of pace as regards farm-out on A2 block post FFS oil
find. Closing at 8cps today on a tad higher volume, with Brent holding at $49 bbl,
I have my suspicions that a deal could be sooner rather than later. Hopefully its
with CNOOC. Be a good lead in if we were looking for a buyer say for half share
of SNE post FID and getting some of that cash in the bank, reflected in a much higher SP
A placement at a premium would be a good way to sell it. Flip them their 70% share
of A2/5, so we have a solid partner with the Lion’s share of the lease that will hopefully
want to develop it quickly, should a resource be discovered there. They certainly have
the financial capacity.

All in all, some patience required. Things will quicken up once FID approaches and we can
Farm-out A2/5 with hopefully a hole drilled around the same time as FID, a year or so from now.
At 8cps, I think we are undervalued by about 12-14cps….give a years time & POO @ $50pbbl.
At $70 Oil undervalued by approx 20cps. At $80 oil about 30cps.

AIMO< DYOR.

GLTAH.

Expand

Hi Mandurah,

I am still trying to digest the scenario, some work you put into it; but I think you should copy that to CN. She could ask you to join the PR team.

Whisky,

Re "Sell or go to production", I think it'll be nice if we can put a hole in A2 quickly, if it comes up trumps, then we sell SNE and appraise A2. Isn't it true (at least in Australia) that if A2 is proven to be connected to SNE, then even after selling out, FAR is still entitled to a portion of the SNE production.

I am just thinking that if the PE is unsuccessful, it's a bit like a second bite of the cherry getting at WPL.

KKW

(20min delay)
Last 46.5¢		Change -0.005(1.06%)		Mkt cap ! $42.97M

Open	High	Low	Value	Volume
47.0¢	47.0¢	45.5¢	$31.34K	67.88K

No.	Vol.	Price($)
3	90826	0.455
2	51822	0.450
1	50000	0.445
1	50000	0.440
1	50000	0.425

Price($)	Vol.	No.
0.500	10000	1
0.510	220895	4
0.515	103300	2
0.520	421965	4
0.525	100000	1

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