FAR 1.23% 40.0¢ far limited

RBC valuation at USD $7 a barrell

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    Woodside said the SNE find, made in late 2014, may hold 560 million barrels of oil. RBC Capital Markets calculated that the deal is pricing the resource at just $US2.20 per barrel, a "significant discount" to its own valuation of about $US7 per barrel.


    Woodside expands footprint in Africa


    July 14 2016 - 1:40PM
    • Angela Macdonald-Smith

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    Woodside Petroleum has agreed to pay about $US430 million ($565.5 million) to serve its way into a potential $US5 billion oil project off the coast of Senegal, setting it up for production off West Africa early next decade.
    The deal to buy ConocoPhillips out of its exploration interests in Senegal, announced Thursday, significantly increases Woodside's exposure to one of the world's emerging exploration hotspots after it took an initial toehold in a separate exploration venture in February.

    Woodside chief executive Peter Coleman has taken the company into African waters. Photo: Philip Gostelow
    It will give Woodside 35 per cent of the SNE and FAN deep-water oil discoveries reported by venture operator Cairn Energy in 2014-16, with Woodside also having the option to take over as operator.
    Woodside said the SNE find, made in late 2014, may hold 560 million barrels of oil. RBC Capital Markets calculated that the deal is pricing the resource at just $US2.20 per barrel, a "significant discount" to its own valuation of about $US7 per barrel.
    Reflecting broader expectations the assets were worth more, the transaction drove a slump in the share price of FAR Ltd, the ASX-listed junior whose main asset is a stake in the SNE and FAN finds.
    FAR shares fell as much as 20 per cent early Thursday and were 13.1 per cent lower at 7.3c before being halted from trading. RBC has a valuation of 17c on FAR shares, including 12c for SNE, but pointed to "extenuating circumstances" that help explain the steep discount in the deal value, including the early stage of developing planning and Conoco's motivation to sell given it had announced it would exit its international deep-water portfolio.
    "We see this as a win-win scenario for purchaser and vendor," RBC energy analyst Ben Wilson said.
    Chief executive Peter Coleman had signalled in February that Woodside was considering larger deep-water acquisitions in Africa and some analysts had speculated the Conoco assets might be in its sights.
    "We'll have to think about the valuation and the cash that would be required to secure them because some of those will become long dated and the more cash that's required . . . we just really need to think through whether that's the right decision for Woodside at that point," Mr Coleman said in February.

    He said on Thursday that the deal was in line with the company's strategy of expanding in under-explored and highly prospective emerging oil provinces.
    "We are taking advantage of our balance sheet to acquire a world-class asset that fits well with our capabilities, offers significant future upside in exploration and line-of-sight to near term oil production," Mr Coleman said.
    Woodside is paying $US350 million for the interests based on a completion date of January 1, 2016, plus a further amount of about $US80 million to cover working capital and other adjustments since that time.
    Cairn Energy has estimated that the Senegal discoveries could break even at prices in the $US30s a barrel range, well below even today's depressed prices. The London-listed explorer has pointed to likely first production from the finds in 2021, using a floating vessel producing 50,000-100,000 barrels of oil a day. The project could cost $US5 billion.
    FAR chief executive Cath Norman said in an interview in March that the waters off Senegal and Guinea-Bissau was the area "where the biggest discoveries are being made at the moment".
    Completion of the deal is subject to approval by the Senegal government and pre-emption rights by the joint-venture partners, which include Petrosen, the national oil company, as well as Cairn and FAR. Woodside is aiming to wrap up the deal by the year-end.
    Conoco's executive vice-president of strategy and exploration, Matt Fox, described the deal as "an important milestone" for the US player as it progressed its exit from deep-water exploration in West Africa.
    Conoco's interests in the three exploration blocks, Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore, were valued in its books at about $US250 million.
 
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