FAR in default on Sangomar payments
Australian oil and gas company FAR Limited is in default of its payments for the Woodside-operated Sangomar development located offshore Senegal after failing to pay in the latest cash call.
FAR said on Wednesday it has not paid the most recent development cash call received by it and accordingly has received notification from Woodside that it is in default.
As previously reported, over the past several months, Woodside has been undertaking a program to rescope, reschedule, and reprice the project in order to reduce capital expenditure.
Woodside also reiterated this week that the Sangomar project remains on track for first oil in 2023 despite reports that Senegal has been forced to delay its first oil and gas projects by up to two years due to the coronavirus pandemic.
FAR has made the strategic decision to preserve the group’s cash whilst it awaits clarity on project capex amendments.
In the interim, FAR is continuing to investigate selling all or part of its interest in the RSSD Production Sharing Contract and the Joint Operating Agreement.
Due to disruptions caused by the Covid-19 crisis and the oil price crash, FAR’s discussions with financiers were materially compromised, presenting challenges to its debt process.
FAR is contractually committed to the Sangomar development and the approved 2020 work program and budget of $163 million. A final investment decision for the project was made in January 2020.
Under the JOA default provisions, if a defaulting party has not fulfilled its financial obligations within six months from the date of notification of the default, it will forfeit its participating interest without compensation. Unpaid amounts accrue interest at the LIBOR rate + 2%.
Key points of the JOA default provisions are a six-month period to fulfil its financial obligations before forfeiting participating interest, non-defaulting parties must pay defaulting party’s unpaid amounts pro-rata to their participating interests over this period, and defaulting party does not attend Operating Committee meetings or vote during default period.
FAR also noted on Wednesday it has implemented a further round of cost-cutting.
The company has made staff redundancies, and all senior executives and Non-Executive Directors have accepted a 20 per cent salary or fee reduction effective 1 July 2020.
The board will review this fee and salary reduction at least quarterly.
This recent round of cost-cutting comes after FAR substantially reduced contractor headcount in April.