FAR Limited an independent, Africa focused, oil & gas exploration company, provides its quarterly activities report for the quarter ended 30 June 2022.
• Discussions with the Government of The Gambia remain ongoing and are focused on terms for the First Extension Exploration Period that will allow FAR to continue to consider options that maximise value from The Gambia, while minimising expenditure over the two-year extension
• Initiated an off-market buy-back of shares held by shareholders that are unmarketable parcels of shares (valued at less than A$500) which completed following the quarter end.
• Cash at period end of US$37.7 million.
• The Board currently expects expenditure for the full year ending 31 December 2022 to be in line with previously reported guidance of US$6.8 million before any share buy-back costs.
• The Board continues to review costs and initiatives to reset the corporate and administration baseline cost.
• The Board and management team continue to examine a range of options that seek to have the share price better reflect the underlying asset value of the Company.
Commenting on the activities during the quarter, Independent Chairman Patrick O’Connor said:
“This quarter FAR has continued to take steps towards better reflecting the underlying asset value of the Company. FAR’s ongoing discussions with the Government of The Gambia on the terms for the First Extension Exploration Period are aimed at providing FAR options to utilise its valuable exploration data to achieve value from the A2 & A5 licences. FAR continues to evaluate broader opportunities in the energy sector and intends to balance any initiatives against the underlying value of our capital position.”
The Gambia - Blocks A2/A5 (FAR 50% working interest and operator)
FAR has been in discussion with the Government of The Gambia on terms for the First Extension Exploration Period that will allow FAR to continue to consider options that achieve value from The Gambia while minimising expenditure over the two-year extension period. The Initial Exploration Period for the A2/A5 licences expires on 30 September 2022.
The Board’s strategy for 2022 is to capitalise on the valuable exploration data so far acquired without drawing down on existing capital to any meaningful extent. The Company will seek to secure a transaction with a suitably qualified party to achieve this strategy.
NW Shelf (Australia 100% WI and operator)
FAR has withdrawn from Exploration Permit WA 458 P.
Woodside Energy Contingent Payment
As part of the consideration for the sale of its interest in the RSSD Project in Senegal to Woodside Energy, FAR received the rights to the Contingent Payment.
The Woodside Energy Contingent Payment comprises 45% of entitlement barrels (being the share of oil relating to the Group’s previously held 13.67% of the RSSD Project comprising the Sangomar Field exploitation area of interest) sold over the previous calendar year, multiplied by the excess (if any) of the crude oil price per barrel and US$58 per barrel (capped at US$70 per barrel). The Contingent Payment terminates on the earliest of 31 December 2027, three years from the first oil being sold (excluding periods of zero production), or a total contingent payment of US$55 million being reached, whichever occurs first.
Using the same methodology adopted by the Independent Expert in the Company’s Target’s Statement dated 23 February 2022, the value of the Contingent Payment at 30 June 2022 (using a 9.5% discount rate) is approximately US$42 million (Target’s Statement value: US$39 million). The difference in the values represents the unwinding of the discount for the time between the report dated 23 February 2022 and 30 June 2022.
In an announcement by Woodside Energy on the progress of the Sangomar project development released on 17 February 2022, it indicated that the development was on track for first oil in 2023.
Woodside Energy’s second quarter report for the period ended 30 June 2022 released to ASX on 21 July 2022 confirmed that the Sangomar Field development phase 1 was 63% complete at the end of the period, and that Woodside Energy is ending its sell down process for Sangomar. The report also provided an update on a number of Sangomar development related activities.
New Business Opportunities
The Board is actively considering new business initiatives across both oil & gas and energy transition sectors.
Any significant new business initiatives must have the potential to offer significantly better returns to shareholders than share buy-backs or capital returns.
In June 2022 Ms Elisha Larkin, the Company’s Company Secretary resigned effective on 12 July 2022.
Ms Claire Newstead-Sinclair was appointed as Company Secretary on 11 July 2022. Ms NewsteadSinclair is employed at Vistra Australia, a professional advisory and corporate services firm, which supports the Board’s drive to reduce fixed corporate overhead costs. Ms Newstead-Sinclair has extensive ASX experience and has provided company secretarial and corporate advisory services to boards and various committees across several sectors.
Buy-Back of Unmarketable Parcels of Shares
The Company initiated an off-market buy-back of shares held by 4,382 shareholders that were unmarketable parcels of shares (valued at less than A$500) at A$0.786 per share, being the 5-day Volume Weighted Average Price (VWAP) of FAR shares at the close of trade on 27 May 2022. This completed following the quarter end. The reduction in the number of FAR shareholders decreases the administration costs associated with maintaining a large number of relatively small holdings on the Company’s share register.
The number of shares bought back was 900,611 ordinary shares at a cost of approximately US$485,000 (A$708,000). The number of FAR shareholders after completion of the buy-back of shares is approximately 4,477 with the remaining shares on issue of 98,889,881 ordinary fully paid shares.
Cash Balance and Expenditure
FAR had US$37.7 million of cash at the end of the period (including US$0.2 million in restricted cash held in The Gambia Joint Venture account). During the June 2022 quarter expenditure totalled US$1.6 million, comprising corporate and administration costs and exploration expenses.
The ‘Other movements’ contribution is mainly attributable to foreign exchange losses associated with the impact of the weakening Australian dollar (AUD) against the United States dollar (USD) on conversion of the AUD cash balance during the period.
Bambo drilling payments of US$0.4 million were made in the period and these payments are substantially complete as at 30 June 2022.
Expenditure for the full year ending 31 December 2022 in respect of FAR’s Gambia project interests to the end of the current licence period, Gambia farm down activities and corporate and administration costs is currently expected to be around US$6.8 million before any share buy-back costs.
The Board continues to review costs in the business with a view to reduce costs wherever practical.
Initiatives have been implemented that will assist in reducing the corporate and administration baseline cost during 2022.
The Company’s target corporate and administration baseline cost is approximately US$2 million, which excludes a number of one-off costs incurred in 2022 and takes into account the benefit of initiatives to reduce costs.
As detailed in Item 6.1 of the accompanying Appendix 5B, the Company discloses that the aggregate payments to related parties and their associates during the quarter was US$112,500. The payments represent remuneration paid to Non-Executive Directors and the former Managing Director during the quarter.
Annual General Meeting
The 2022 Annual General Meeting (AGM) was held on Tuesday 31 May 2022 at 11am (AEST) with all resolutions passed.