FAR Gets First Instalment from Cairn for Senegal Farm-in

FAR Limited (“FAR”) has received a first tranche payment of US$4.8 million from Cairn Energy PLC (“Cairn”). This is partial payment of the back costs agreed in the farm-in agreement on FAR’s offshore Senegal petroleum exploration permits announced in March this year.

Under the farm-in agreement, approved by the Senegalese Government in May, Cairn will fund 100% of FAR’s costs of one exploration well offshore Senegal to an investment cap of US$80 million. In addition Cairn has agreed to pay US$9.82 million in two tranches for past costs. The second tranche payment of US$5.0 million is expected during the next quarter.

In accordance with the farm in agreement, FAR has now transferred operatorship of the joint venture to Cairn.

FAR managing director, Cath Norman, said, “The first tranche payment from Cairn Energy further strengthens FAR’s balance sheet and overall corporate position. FAR now has AU$23.7 million in cash and no corporate debt and will be free carried through two, potentially high impact, exploration wells in Senegal with a total investment of approximately US$190 million. With our strong cash position we are also well placed to create further shareholder value in the near future on our highly prospective exploration acreage in offshore Kenya, Guinea Bissau and the AGC Profond as well as new opportunities.”

On 1 August FAR announced a second farm-in agreement in relation to its offshore Senegal permits. Under the terms of the agreement, which remains subject to Senegalese Government approvals, ConocoPhillips will provide additional funding equivalent to a full carry of FAR through a second exploration well in exchange for a 10% working interest in the Senegalese permits. This funding will take the form of cash payments and well carry cost payments.

After completion of the two farm-in deals with ConocoPhillips and Cairn, FAR will have secured full funding for its share of two exploration wells totalling approximately US$190 million (100% basis, FAR estimate) and net surplus cash of approximately US$10 million.

The two exploration wells, expected to start drilling in the first half of 2014, will target approximately 1.1 billion barrels of unrisked prospective resources. The wells will test a ‘shelf’ play and deeper water ‘fan’ play. Both plays have significant follow-up drilling potential in the event of a  iscovery.

FAR retains a 15% working interest in the permits. ConocoPhillips and Cairn will hold 35% and 40% respectively. Petrosen, the Senegal National oil company, has a 10% carried interest through the exploration phase.