Woodside buys into Senegal giant

WOODSIDE Petroleum has agreed to pay ConocoPhillips around $US430 million ($A565 million) to buy out the US supermajor's interests in Senegal, including the giant SNE oil field, forcing FAR, which appears to have been caught on the hop, into a belated trading halt.
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Haydn Black

Reporter

The deal will be back-dated to January and includes $350 million in cash and an $80 million completion adjustment to cover expenses associated with the blocks this year.

ConocoPhillips is selling a 35% interest in the Rufisque Offshore, Sangomar Offshore and Sangomar Deep Offshore blocks, originally secured by Hunt Oil and later purchased by then-partner FAR for $1.

FAR was yesterday afternoon worth $374.77 million, but it saw its price fall by 13.095% as investors digested the indication that Woodside appeared to be paying less than FAR's valuation might suggest.

It was last valued at $325.69 million.

Some back-of-the envelope numbers suggested FAR's stake could be closer to $240 million, independent analyst Peter Strachan said.

On that basis, the deal was an "extraordinarily good" one for Woodside, and provides both a see-through value for the project and highlights the risks for FAR going forward.

Strachan had previously suggested that Woodside could take over or buy out FAR, which, assuming development costs of $20/bbl, would see FAR need to come up with at least $A1 billion to get started, and possibly as much as $US2.5 billion.

"I can't see a takeover now. Why would they? FAR has a tiger by the tail, they are playing with the big boys, and the most aggressive partners (Woodside and Cairn) could simply AFE [Authority for Expenditure] the weakest out of existence," he said.

"What FAR could do is dilute their interest, selling half, to fund the development, or they could simply sell down in SNE to cover the development costs and retain exposure to the nearby prospects.

"We won't know for some time, but this has been an extraordinarily good deal for Woodside already."

RBC Capital Markets analyst Ben Wilson agreed Woodside was paying a much lower price than he would have anticipated given the appraisal work completed to date, the quality of the resource, the favourable PSC terms, and the bonus of operatorship

"We therefore conclude that Woodside has executed a strongly accretive deal," he said.

He suggested there were extenuating circumstances to explain the impact on FAR: the asset is still in the early stages of its development life cycle with further appraisal and FEED work required and ConocoPhillips is a strongly motivated seller given its commitment to exit its deepwater portfolio.

FAR has transformed from a struggling junior with interests in Australia and North America to a major player in Senegal, where it has held its 15% interest for a decade. It survived the decision by former operator Hunt to quit, and the entry and departure of Shell during the Global Financial Crisis, before making a make-or-break bet on its ability to find partners.

It survived, successfully shopping the blocks to Cairn Energy (40%) and ConocoPhillips in 2013, and the result was two discoveries later that year, FAN-1 and SNE-1, marking the first ever discoveries offshore Senegal.

New operator

The blocks are operated by Cairn, however Woodside will gain the right to operate any developments from ConocoPhillips, assuming neither Cairn nor FAR exercise their pre-emptive rights.

Woodside estimates that the SNE discovery contains 560 million barrels of recoverable oil (2C), or a net working interest of 196MMbbl acquired at just 2.20/bbl, but FAR has previously said it expects to once again increaser the potential based on the successful BEL-1 and SNE-4 appraisal wells.

FAR's 3C upside is to 1Bbbl.

Alignment

In a statement to the ASX this morning, Woodside CEO Peter Coleman said the acquisition aligned with the company's growth strategy by providing a significant position in an under-explored and highly prospective emerging oil province.

"We are taking advantage of our balance sheet to acquire a world-class asset that fits well with our capabilities, offers significant future upside in exploration and line-of-sight to near term oil production," he said.

He said Woodside's experience in deepwater drilling, development and operation of subsea infrastructure and floating production storage and offloading vessels would help bring the SNE oil field to market, echoing comments he made at Woodside's AGM earlier this year.

FAR previously estimated that 200MMbbl would be required to make the development of Senegal's first offshore oil field viable.

Woodside says its deal can be comfortably funded within existing $2 billion liquidity buffer.

Assets

In all, the Senegal JV has successful drilled six wells within the 7500sq.km area and maintains a large leads and prospects inventory, mostly defined on 4000sq.km of 3D, plus there is seismic over the Rufisque Offshore that is still to be interpreted.

The SNE discovery was made at the same time as FAN-1, a 250MMbbl to 2.5Bbbl oil-in-place find within a channel fed submarine fan play that is considered a higher risk, so the partners have decided focus on SNE.

Woodside was previously in Africa in the early 2000s, undertaking technically successful campaign that helped open exploration in Mauritania, but sold out in the middle of the decade to focus on its Australian LNG ambitions.

In the past two years Coleman has been re-engaging with the world, securing positions in deepwater Morocco, and more recently in the AGC Profond block (65%), the south in the Senegal-Guinea Bissau joint development zone.

Woodside hopes to close the Senegal deal before the end of the year, assuming neither FAR, Cairn nor state oiler Petrosen (10%) use their pre-emptive rights, which seems unlikely.

Engineering work for the SNE development is expected to begin next year.

FAR is also due to make a decision to progress with a JV in the adjacent Djiffere block is expected in the final quarter.

FAR has interests further interests in Guinea-Bissau and Kenya, and one block, WA-458-P, where there are structural and structural/stratigraphic leads at proven reservoir levels with combined unrisked prospective resources estimated at 359MMbbl on the North West Shelf near Cossack, Wanera, and Legendre.

FAR also participated in the Kora-1 well in a former licence over the AGC Profound area.

ConocoPhillips discussed possible divestment of its early-stage deep water portfolio last year.

"This is an important milestone for ConocoPhillips as we progress our phased exit from deepwater exploration in West Africa," the company's executive vice president, Strategy, Exploration and Technology Matt Fox said.

"I want to thank our joint venture partners for their collaboration and contributions during the exploration and appraisal phase of this project."

The three offshore exploration blocks had a net carrying value of $US250 million on ConocoPhillips' books.

History

Hydrocarbon production in Senegal prior to FAR was limited to several small oil and gas fields around Cape Verde (also known as the Dakar Peninsula) from Upper Cretaceous sandstone reservoirs bounded by normal faults, of which only two gas fields and one oil field held more than 1MMbbl or six billion cubic feet of gas.

In 1996 Senegal's discovered resources were 10MMbbl and 49Bcf and it had not changed that number until FAR and its partners drilled SNE-1, the biggest discovery in the world since 2014.

The US Geological Survey estimated that a fraction of Senegal's potential has been identified.

The Senegal Basin is the largest of the north-west African Atlantic margin basins with a total land area of about 340,000sq.km and an offshore portion in excess of 100,000sq.km.

The basin also takes in Mauritania, Gambia and part of Guinea-Bissau.

Until 2000 there had been very little exploration, especially in deeper waters.

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