WTI $70.30 +$3.10, Brent $72.23 +$2.88, Diff -$1.93 -22c, NG $3.96 +8c, UKNG 89.49p +2.04p
Oil rallied big time yesterday shrugging off a mixed inventory report from the EIA who saw a build of 2.1m barrels of crude but a small draw in gasoline and a 1.3m draw in distillates. Refinery runs were still high, up there at 91.4% but with higher imports and lower exports the demand for gasoline up at a record high since they began in 1990 Americans are still driving.
It seems that all is back on for Far after its traumatic recent history, judgement differ which I understand but I personally felt that they were hard done by, an unfortunate series of events one might say, others are less gratuitous.
For today the company announce their upcoming programme and have released a new corporate presentation. They have received $128m from the Senegal sale process and have no debt and are planning a capital return of some A$0.80 per share and they are expecting to return to the market tomorrow.
Next stop is to drill the Bambo-1 exploration well in The Gambia in Q4 which is fully funded. The rig is contracted and expected to mobilise in the second half of October with a spud date of late October/early November. The well is part of the 2021 work program for the A2 and A5 licences held offshore Gambia where FAR is the Operator and has a 50% working interest. The Bambo-1 well is designed to drill three prospects with a total estimated recoverable prospective resource of 1,118 mmbbls.
The approved budget for the well is US$51M (FAR share US$25.5M) with US$6.5m expended to date. FAR’s share of the well costs, contingency, success case options as well as expenditure on other assets and general administration costs will be funded from cash at hand following the capital return.
Elsewhere the company are to farm-out or sell the Guinea-Bissau asset and drill or drop the WA-458-P asset thus tidying up the portfolio. The company has a new board led by a new Chairman but Cath Norman remains as Managing Director and I understand the genuinely high quality technical team who in my view were prime contributors to the Senegal discovery remain intact.
At long last I managed to track down Tom Kelly, CEO of Empyrean a couple of days ago, as I said to him, I was beginning to lose faith as it had been so long. The recent raise reminded me of his existence and eventually we got together on the line from a camp site in WA.
The raise I mentioned was crucial, not because it gave the company the wherewithal to drill the China project .I have watched this since inception but with its ingenious levered warrant programme it means that shareholders will get the opportunity to pay for the programme and substantially avoid any dilution. The bonus warrants at 12p and 18p seem quite a target given the 6p placing price but there is method in this apparent madness.
The discount seemed high on the day of the deal but in an unusual twist the shares had been running up sharply during the roadshow and the price had been offered to the early birds in the 10+ day process. It should not be forgotten that this placing was taken up by both UK and Aussie investors and as a ‘fan club’ stock the stock is tightly held and make big moves on small orders.
Operationally things appear to be very much on the move, hiring a rig is not far away and the Jade prospect has a 32% COS according to Gaffney Cline and of course any success here would de-risk the Topaz and Pearl prospects, overall the combined audited mean in place potential of all three prospects is 884 MMbbl and a P10 in place upside of 1,588 MMbbl.
With dry hole costs of some $18.5m plus testing in the books, and may be lower, any savings are effectively equivalent to a modest farm-out and of course shareholders can do their bit to avoid further dilution by getting the shares up and taking the warrants at 12p and 18p which is in itself a double whammy. Management and major shareholders are making it very clear that they want to keep as much of this project as they possibly can and if that is their 49% then all the better.
Doing the sums make this play, whilst not without risk, a potentially a mammoth returner should even Jade only come in. Look at the numbers above if you even take away 3/4 of the cautious expectations and just leave say, 100m barrels at say $5-8 in the ground you can get to $500m which X 49% gives a pretty pleasing number. Certainly huge compared to the current market cap of £33m.
This is no gimme, they rarely are but I have looked at EME for many years waiting for just this moment to arrive. It remains a high beta exploration risk as investors must expect if they put the money down but the unwillingness to farm-out if at all possible must be good if only it leaves the funding process in the hands of the owners. Either way the next few months ahead of drilling later this year should be a roller coaster and I hope that it works for Tom and Gaz and the shareholders who have followed it.
The Hundred started last night with the men’s first game is tonight between The Oval Invincibles and the Manchester Originals at The Oval. An invention of the ECB who just couldnt bear to see T20 cricket doing so well but any sport is good with me especially cricket. It will be difficult as a Surrey supporter to see our players in other teams but nanny ECB knows best…..