FAR Limited an independent, Africa focused, oil & gas exploration company, provides its quarterly activities report for the quarter ended 31 December 2022.
Highlights
? FAR continues to advance strategies to monetise The Gambia Blocks A2 and A5
o During the quarter FAR opened a data room for suitably qualified parties
o Review of the data room by a number of third parties is substantially complete, with the objective of finalising an outcome in the first half of 2023.
? In December 2022 FAR commenced an on-market share buy-back that resulted in 694,787 shares being bought back at an average price of A$0.68939 per share and a total cost of A$480k (US$332k) as at 31 December 2022.
? Cash at quarter end was US$33.7 million (unaudited).
? FAR continues to evaluate new business opportunities across the energy sector that have the potential to deliver shareholder value.
Commenting on the activities during the quarter, Independent Chairman Patrick O’Connor said:
“We continue to explore options, including establishing a joint venture to undertake and fund the extension exploration work program for The Gambia A2 and A5 blocks, with the aim of creating value for our shareholders from the extensive exploration data associated with the project.
The Board will also consider opportunities for the monetisation of the Woodside Contingent Payment nearer the commencement of first production from the Sangomar field in late 2023. This is in line with our strategy to explore every opportunity to reflect the underlying asset value in the FAR share price.
The decision to implement an on-market share buy-back aligns with the Board’s focus on fiscal discipline and shareholder returns. We believe an on-market buy-back is an effective method of returning capital to shareholders while the Company continues to evaluate broader opportunities across the energy sector.”
The Gambia - Blocks A2/A5 (FAR 100% working interest)
The First Extension Exploration Period for Blocks A2 and A5 commenced on 1 October 2022 and is scheduled to run for a two-year period. Based on discussions initiated by FAR, the Government of The Gambia agreed to remove the obligation to drill an exploration well during this term. The removal of the commitment to drill results in a significant reduction in expenditure and allows for a detailed geoscience review incorporating the results of the Samo-1 and recent Bambo-1 wells to ensure future exploration wells are located optimally.
FAR has a 100% interest in Blocks A2 and A5 and the revised investment obligation enhances FAR’s ability to seek farm-in partners to the project. The Company continues to consider options to deliver value from The Gambia assets, while minimising expenditure over the two-year extension period.
During the quarter the Company opened a data room for suitably qualified parties to consider participation in a Joint Venture to undertake the geoscience review and ultimately to drill additional exploration wells. FAR expects new partners to fund the costs of the work program during the two-year period, subject to satisfaction of certain conditions including Government approval; incoming participants in a Joint Venture may assume operatorship.
A number of suitably qualified parties have reviewed the data room with the objective of finalising an outcome in the first half of 2023.
The Board’s strategy for The Gambia assets in 2023 remains focussed on efforts to capitalise on the valuable exploration data acquired to date without drawing down on existing capital to any meaningful extent.
Woodside Energy Contingent Payment
As part of the consideration for the sale of its interest in the RSSD Project in Senegal to Woodside Energy (“Woodside”), FAR received rights to a Contingent Payment with a maximum value of US$55 million.
Woodside in its fourth quarter report for the period ended 31 December 2022, released on 25 January 2023, indicated that the Sangomar Field Development Phase 1 was 77% complete and is on target to start producing oil in late 2023. Based on this latest Woodside update annual payments under the Contingent Payment are likely to commence in early 2025 and based on current oil prices, the Board of FAR expects that the full US$55 million will be received prior to the transaction long stop date in 2027.
New Business Opportunities
The Board continues to actively consider 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.
Cash Balance and Expenditure (unaudited)
FAR had US$33.7 million of cash at the end of the quarter. During the December 2022 quarter expenditure totalled US$1.9 million, comprising corporate and administration costs, exploration expenditure and payments associated with the extension exploration period in The Gambia. In addition, payments for the on-market share buy-back in the quarter totalled US$0.3 million.
The expenditure associated with the first extension exploration period in The Gambia comprises mainly the upfront annual surface rental charge paid to The Gambian Government.
Financing comprises interest received on cash invested in term deposits less right-of-use lease payments for the period. At the end of the quarter the Company had US$33 million invested in term deposits at varying interest rates.
Cash expenditure for the full year ended 31 December 2022 was a total of US$6.5 million, including expenditure related to The Gambia extension exploration period of US$0.8 million in the quarter.
The Board continues to focus on reducing costs in the business wherever practical. The Company’s target corporate and administration baseline cost for FY2023 of approximately US$2 million, excluding one-off costs and share buy-back payments, remains in line with previous forecasts. As part of the year end reporting process the Board will approve the FY2023 budget expenditure.
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$158,000. The payments represent remuneration paid to Non-Executive Directors and the former Managing Director during the quarter.
Corporate
In November 2022 the Company announced its intention to undertake an on-market share buy-back for up to 10% of the Company’s issued capital. The buy-back is to be conducted over the twelve-month period from 1 December 2022 unless completed sooner or terminated earlier.
As at 31 December 2022 the Company had bought back 694,787 shares at an average price of A$0.68939 per share. The total cost of the buy-back as at 31 December 2022 was A$480,000 (US$332,000). In accordance with the Company’s Securities Trading Policy the buy back of shares
ceased on 31 December 2022 and will recommence on 1 February 2023 following the release of this report.
