FAR opts to keep future Senegal payment and embarks on Gambian assets farm-out
Australia’s FAR Limited has decided to retain the Woodside Contingent Payment within the company rather than demerging it into a new entity. However, a demerger is still on the table for the firm’s exploration portfolio in The Gambia, as the Australian player seeks farm-out options or outright sale to maximise the value of these assets.
The Woodside Contingent Payment entitlements are associated with the sale of FAR’s entire interest in the Senegal RSSD Project to Woodside for which FAR received $126 million in cash as well as rights to the Contingent Payment as consideration for the sale. After obtaining shareholder approval, FAR made a capital return to shareholders of 80 cents per share in September 2021.
Following the completion of the sale to Woodside, FAR has no remaining interest in the RSSD licences offshore Senegal – Rufisque Offshore, Sangomar Offshore, and Sangomar Deep Offshore – however, FAR may receive future payments of up to $55 million from the time of first oil production from the Sangomar field, which is targeted for 2023. Under the terms of the agreement, these payments are contingent on the future oil price being above $58 per barrel.
In an update on Tuesday, FAR revealed that it has completed its investigations of options relating to the Woodside Contingent Payment and the advancement of strategies associated with the company’s exploration portfolio in The Gambia.
FAR believes it is likely that the Woodside Contingent Payment of $55 million will be received in full over time based on current statements by the operator and current oil prices. Back on 23 February 2022, the Australian firm advised that the payment was assessed by an independent valuation expert engaged by FAR at a mid-point valuation of $39 million using a discount rate of between 9 per cent and 10 per cent.
FAR explained within its statement that retaining the payment within the existing corporate structure is preferable to demerging it into a new entity, adding: “The tax losses and capital structure of FAR may allow, when the proceeds of the Contingent Payment are received, for the consideration of a capital return to shareholders in a similar way as was done in September 2021, subject to the customary tax considerations at that time and obtaining of an ATO class ruling.”
Alternative demerger strategy for Gambian blocks
FAR holds a 50 per cent working interest and acts as the operator of oil and gas exploration assets in two licenses in The Gambia – blocks A2 and A5 – while its co-venturer is Petronas with the remaining 50 per cent stake in these licenses.
The Australian player provided an update on the exploration potential of these assets in February 2022, after completing a review of the prospectivity of these blocks with Petronas, which led to additional, material exploration opportunities.
FAR is now progressing a farm-down of its working interest and in doing so, seeks a carry of a well for drilling in late 2023 or an outright sale. If Gambian exploration assets are not sold in their entirety, the company intends to separate them by way of a demerger into a separate stand-alone listed entity. FAR’s board considers that this should occur following the achievement of a farm-out, which would have the effect of reducing the firm’s exposure to the cost of a 2023 exploration well. The company further elaborated that any such separate stand-alone entity would need to be sufficient in size and operations to justify such a listing.
Patrick O’Connor, FAR Independent Chairman, remarked: “While we continue to focus on our core expertise as an oil and gas exploration company, we are seeking to extract maximum value for our exploration assets in The Gambia by way of farm-out with a financial carry, an outright sale or ultimately a demerger. The board is focused on the careful management of the balance sheet and the unlocking of shareholder value.”
When it comes to FAR’s activities elsewhere, it is worth noting that the company is in the process of undertaking the required steps to exit from its assets located offshore Guinea-Bissau, as joint farm-down efforts with its partner PetroNor were unsuccessful.
The Australian player also handed over a notice of termination to its managing director last week, believing it is time to bring a fresh perspective to explore new growth opportunities.