FAR withdrawing from Guinea-Bissau as farm-down plans come to naught

Following unsuccessful farm-down attempts, Australia’s FAR Limited is undertaking the required steps to exit from its assets located offshore Guinea-Bissau.

Back in January 2022, FAR explained it was open to farming down its interest in the country prior to drilling an exploration well as stipulated by the terms of the licence. To this end, the company was working with the operator, PetroNor, to finalise the 2022 work programme and budget for approval and finalisation.

The two players were carrying out a full review of a potential well location for the 2023 programme with the Atum prospect as the key drill target – mapped to contain best estimate prospective resource of 471 mmbbls, gross, unrisked, 101 mmbbls net to FAR – while the operator was also doing a review of the commerciality of the Sinapa discovery in the offshore shallow water.

The Sinapa discovery contains 13.4 mmbbls of oil with 2.9 mmbbls net to FAR in 2C contingent resources and there is an estimated 72 mmbbls of propective resource in the West and East Sinapa prospects that are able to be tied into a potential development at Sinapa.

FAR holds a 21.43 per cent interest in the Sinapa (Block 2) and Esperança (Blocks 4A and 5A) licences in Guinea-Bissau, which have been extended for 3 years and are valid until 2 October 2023. During this time there is an obligation on the joint venture to drill an exploration well.

In an update on Tuesday, FAR informed it had started the process to withdraw from its interests in the blocks offshore Guinea-Bissau. The firm provided notices of withdrawal to the government of Guinea-Bissau and the operator, PetroNor, as joint efforts by FAR and PetroNor to collaboratively farm down have been unsuccessful.

The company also elaborates that it has already met the minimum financial commitments associated with the license. As there are no 2022 commitments in place, the firm does not expect to incur any new material expenses related to these interests. The Australian player has impaired $2.7 million of capitalised costs associated with the Guinea-Bissau project in 2021.

In addition, FAR has previously disclosed a contingent liability of up to $13 million payable in the event of production, and a contingent withholding tax liability of $568,000 in the event of development, relating to the Guinea-Bissau interests. Furthermore, in the event of withdrawal, FAR will not participate in any future development and production relating to these interests, thus, the contingent liabilities will no longer exist.

Meanwhile, FAR highlights that the Samuel Terry Asset Management takeover offer has closed without the offer conditions being satisfied or waived. Therefore, the company says that any shareholder acceptances will not be processed. FAR directors had recommended rejecting the offer.

To remind, FAR confirmed in January 2022 the receipt of an off-market takeover offer from Samuel Terry Asset Management – as trustee for Samuel Terry Absolute Return Active Fund – for the acquisition of all the issued fully paid ordinary shares in FAR at $0.45 cash per share, which FAR believed to be well below its current share market price. At the time, the firm recommended to its shareholders to take no action regarding this offer.  

In its letter to shareholders, which FAR sent on 10 February 2022, the firm reminded that its shareholder Meridian Capital International Fund, holding a 19.28 per cent stake, rejected the offer on 4 February 2022 – subject to any variation which STAM might make and subject to Meridian’s ability to change its position after 14 March 2022 – while Samuel Terry Asset Management’s offer was conditional on obtaining a minimum of 50.1 per cent acceptance level.

A few days later, FAR sent the board’s formal recommendation (i.e. Target’s Statement) in respect of the takeover offer, urging its shareholders to “reject the inadequate and opportunistic offer that materially undervalues the FAR shares.”

It is worth noting that this is not the first time that FAR received a takeover bid that fell through, as two previous offers suffered the same faith: one by Remus Horizons and the other by Russia’s Lukoil in 2020 and 2021, respectively.