FAR Limited (FAR) Earnings Call Transcript & Summary

Good morning. I would like to welcome you all to the 2022 Annual General Meeting of FAR Limited. My name is Patrick O’Connor, and I am the Chairman of the company. I've been advised by the company's Secretary that there is a quorum present and accordingly declare the meeting open. I'd like to introduce my fellow directors who are with us today. Robert Kaye was appointed to the Board in June 2021 and brings a strong governance background as well as the wealth experience from his time on numerous other ASX-listed companies. Alan Stein joined the Board in March 2022. Alan brings a wealth of experience from his career as a geologist with more than 30 years working in the international oil and gas industry. Robert, Alan and I are up for reelection to the Board this year, and we will address that later in this meeting. Baker & McKenzie are our lawyers, and I thank Rich Lustig for joining and for hosting us today. Computershare are our share register provider and represented here today by [ Chris Derek ] and he is the returning officer. Also present online is Vincent Snidjers, our company auditor, Deloitte. The meeting has been convened as a hybrid meeting in accordance with the latest ASIC guidelines, and I thank you for all taking the time to join us via the webcast or here in the room with us. Please be advised no one is permitted to make a recording of these proceedings. The Computershare meeting platform allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of this meeting. In addition, proxies and shareholders have the ability to ask questions and submit those. Online attendees can submit questions at any time. To ask a question, select the Q&A icon, typing your question into the textbox and once you have finished typing, please hit the send button. To ask a verbal question please follow the instructions written below the broadcast. Voting today will be conducted by way of poll on all items of business. I'll shortly open voting on all resolutions. Polling on resolutions 1, 2A, B and C will close after I take questions on those resolutions. Resolution 3, the conditional spill resolution will only be put to the meeting if there is more than 25% of the votes against the resolution 1, the adoption of the Remuneration Report. If you are eligible to vote, once voting opens, press the vote icon on all resolutions, and all resolutions will be activated for vote with voting options. To cast your vote, simply select one of the options. There is no need to hit submit or enter button as the vote is automatically recorded, and you will receive a voting confirmation notice on your screen. You can change your vote up until the time I declare the voting closed. The shareholders attending in person, voting will likewise be opened shortly, and you'll be able to complete your voting forms and the Computershare representative will collect them at the close of the poll. If you have any trouble vote -- with voting, you'll also be able to find a link on the online voting guide on our Investor Center web page, along with Computershare's contact number, which is 03-9415-4024. It is also on the slide, and I'll repeat the number in a moment. You're encouraged to raise questions or comments regarding voting logistics or the subject matter of this meeting at an early stage to ensure aspects are promptly addressed. A reminder, the Computershare help desk number is 03-9415-4024. The results of the meeting day will be announced to the ASX and will be placed on our website later today. I now declare voting open on all items of business. I'll make some opening remarks about 2021 before moving to procedural business. I will take you through the resolutions, take questions relating to the resolutions before the polling will close. Non-executive Director, Alan Stein, will then provide you with a technical update, and I'll provide an overview of our 2022 strategy before we take further questions. Turning to the year 2021 review. 2021 was a year of significant change for your company. In July 2021, FAR completed the sale of its entire interest in the RSSD project to Woodside in a transaction approved at a general meeting of shareholders held 28 April 2021. FAR received $126 million in cash from Woodside on completion of sale on 7 July as well as the rights to a contingent payment as consideration for the sale of its interest in the RSSD project. The contingent payment of up to USD 55 million is payable in the future based on various factors relating to the sale of oil from the RSSD project. We'll discuss this in more detail at the conclusion of meeting. We returned $0.80 a share to shareholders from the proceeds of sale of the RSSD project, which was approved by shareholders in September 2021. The return highlights our commitment of returning surplus capital and creating value to shareholders. A number of Board changes occurred shortly prior to the settlement of the Woodside sale, with Robert Kaye and myself being appointed as directors and I became Chairman of the company in July 2021. In March 2022, Alan Stein was appointed Director, Catherine Norman was given notice of termination of employment and resigned as a Director effective 23 March 23 2022. We now have a Board with a broad experience and diversity of skills set to deliver the results needed for the company of our size. The Board has also taken a reduction in fees to ensure we are aligned to the size and outlook for our company. We appointed a CFO on a contract basis to further ensure our management team are rightsized and flexible to our future requirements. FAR successfully completed the Bambo-1 well, including the associated side-track well Bambo ST-1 in offshore The Gambia. Importantly, we continue to deliver safe operations. In 2021, the Bambo drilling campaign represented the company's major operational and financial activity, and FAR is proud to have safely delivered the well. Whilst the Bambo-1 well did not result in an oil discovery, it did provide valuable data to allow for a better understanding of the exploration potential of the company's licensed blocks A2 and A5 in which the company holds a 50% working interest and is the operator. The company announced in February 2022, it had analyzed the results of the drilling and had high-graded 3 prospects, each housing multiple oil bearing reservoir targets for a revised total prospective resource volume Best Estimate (P50) of 1,594 million barrels on an unrisked, recoverable resource, 100% equity basis. The company has announced it's withdrawn from its Guinea-Bissau joint venture and is in the process of dropping its northwest shelf permits. Early 2022 has seen a now expired takeover offer for the company not recommended by the Board. The process saw the release of the company's takeover target statement and on 23 February, your Board assessing the value of the FAR shares to be equal at least to $1 a share being based on the aggregation of the uncommitted cash at the end of '21 of $33.4 million, and the valuation of the Woodside contingent payment, which was independently assessed for the purpose of target statement at a midpoint value of USD 39 million. The assessment of $1 per share does not attribute any value to the benefits which may arise from the cash outflow of $6.8 million during 2022 or any value to the oil and gas assets. What I'd like to do now is move to the business of the meeting. Moving to the procedural part of today's business, if you wish to ask a question or make a comment virtually, please use the Q&A button and type in your question. If you wish to ask a question or make a comment physically, please raise your hand, and I'll repeat the question so those participating virtually can hear it. Please limit your questions to the terms of business and resolutions and clearly specify which it relates to. I'll read through all the resolutions before taking questions. Our Company Secretary will be reading out your online questions to me. Please bear with us as we process through them. Unless there's an objection, I will take the notice of meeting dated 29 April 2022 as read and will proceed with the set agenda items. The first item of business today is to table the annual report for the year ended 31 December of 2021, which includes the financial report of the company and its consolidated entities, the Director's Report and the Independent Auditor's Report thereon. The annual report is accessible on the FAR website. I'm advised there are no recent questions that have been submitted to the auditor for response today. The auditor will be available to take online questions about the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted by the company in relation to the preparation of financial statements or the independence of the auditor in relation to the conduct of the audit at the conclusion of the formal business of the meeting. Unless there's an objection from the floor, I will take the financial report for the company and its consolidated entities for the year ended 31 December of '21, the Directors' Report for the year ended 31 December '21, and the Independent Auditor's Report thereon as received and adopted by members. I'll now run through each resolution, and your attention is drawn to a list resolution of proxy votes received in respect of each resolution shown on the screen. Resolution 1 is an ordinary resolution and deals with the adoption of the remuneration report for the year ended 31 December 2022 as set out in Notice of Meeting dhould the company receive more than 25% of votes cast against this resolution, the conditional spill resolution we put to the meeting. I note that less than 5% of the votes cast ahead of the meeting are against resolution 1. Resolution 2A is an ordinary resolution that deals with reelection of myself, Patrick O'Connor. Resolution 2B is an ordinary solution that deals with reelection of Non-executive Director Robert Kaye. And Resolution 2C is an ordinary resolution that deals with the reelection of Non-Executive Director, Alan Stein. The directors unanimously recommend that shareholders vote in favor of the resolutions with each director abstaining from recommending their own reelection. As Chairman, I intend to vote undirected proxies in favor of the resolutions. I now invite questions on the [ item ] of business from the floor and ask the Company Secretary to advise me any questions online. I'll also take general questions from the -- following the presentation at the end of the meeting. Are there any questions?

[indiscernible].

Okay. Thank you. I proposed to continue. Being there are no questions, I now formally put resolution 1, 2A, 2B and 2C as set out in the Notice of Meeting. I will now pause for a short period to allow time for anyone in the room or online who has not yet voted to do so. [Voting]

For those in the room, would you like to collect the proxies for those who voted? Thank you. That ladies and gentlemen, concludes the formal business of the meeting, and I declare the poll to be closed and request the returning officer to tally the votes and advise me the outcome in due course. Polling will be reopened later in the meeting should conditional resolution 3B required. As mentioned, the results of the meeting will be available on our website later today. What I'd now like to do is talk to a general presentation covering our assets, and I'd like to speak briefly to the Woodside contingent payment. FAR received $126 million in cash from Woodside as well as the rights to contingent payment as consideration for the sale of our Senegal RSSD project. The potential future contingent payment of up to $55 million is payable dependent on oil price and production from that project. Annual payments are anticipated to commence in 2024. The Board has determined that retaining the payment within the existing corporate structure FAR is more effective. And the Board will consider opportunities to monetizing of this asset near the commencement of production. What I'd like to do is now invite Alan to talk to our Gambian asset, and I'll come back and finish with strategy.

Thank you, Patrick. What I'd like to do is step back a little and look at our Gambia asset in a slightly different way. In fact, let's go back to the very simple basics of what's happened so that we can take a view as to what we have and what we should do with it. Now it's a source of frustration for all of us that the investments in the Gambia thus far have failed to find commercial hydrocarbons. And while it might be cold comfort, we should note that all the wells drilled in and adjacent to The Gambia have given us very important clues about all the different puzzle pieces that go together to make up a petroleum system. And the wells drilled, Samo and Bambo, recently have been particularly valuable in that regard in giving us some of that information. And you know it's a common trend in a lot of basins around the world that you see the first entrant to a basin coming in and they drill calibration wells perhaps without success, and then they leave frustrated, leaving the field open to the second and third entrants into the basin who come in and benefit from that knowledge. And in fact, there can be no better example that's around and relevant today as what happened in Namibia where HRT Petroleum, almost 10 years ago, drilled 4 wells back to back. None of those wells were deemed to be successful. Yet all of those wells found different elements of the petroleum system. They found source rocks, they found reservoirs, seals and shores in different combinations. HRT exited, leaving the field open for the rest of us to come in and we'll work out how to triangulate that petroleum system and where to go. And you end up next to Total, who've now made and used that information to make an extraordinary discovery one of the -- possibly one of the biggest offshore discoveries ever made. So how do you think that makes HRT feel? So we need to be quite cognizant of that and we need to think and be quite smart about making sure that we don't end up in the same position as HRT because truly, we have unlocked a lot of the puzzle pieces in this basin. So we need to be smart to find a way to protect that investment and to protect the competitive advantage that we have by having both the rights to explore and the new data. So we're going over all the data we have. We're having discussions with our joint venture partner and with the government to determine how best to progress with this project and how to unlock value. With the caveat, however, that future drilling activity in this asset will be or perhaps must be funded through the introduction of new investors into the joint venture. We have the next slide, please. So I'm going to step right back to 1979 to the very first well that was drilled Jammah by Chevron. At the time, the world's deepest water exploration well, around about 1,000 meters. Now the well found several reservoirs. It found seals. But at the time, it did not find hydrocarbons. And it wasn't until 40 years later that FAR came along and sampled the rock chips in this well and in fact, found evidence that an oil charge had passed through some of these sandstones. So that's quite exciting. Modern 3D seismic showed us that the well was drilled way down dip on the very edge of closure. And that if we went up to the top of the structure, there was a direct seismic -- direct hydrocarbon indicator on seismic. But that the tertiary carbonates, which is shown on gray on that cross section, had actually come -- had come down and actually touched the Jammah reservoir, and they're not a seal, so it was a breach of the seal. But what the new data showed us was that we think we had a trap that was partially filled but compromised because of the breach of the seal, caused by those gray unit coming down, touching the reservoir. But quite an exciting thing to set up. We have the next slide, please. So again, after a long gap between the disappointment of Jammah, along comes the first well. Now this is in Senegal, of course, but the geology doesn't care about the borders. A FAN found up dip in an old column, very exciting. Albian to Turonian sands interbedded with a very, very thick sequence of source rocks, and they were mature and they were generating oil. So this is the well that proved there was an extraordinarily prolific petroleum system active in this area. So the question that we needed to ask is that we knew in the West, we had an oil system that was working, generating huge quantities of oil. We knew up in the East, we had Jammah with its reservoirs and seals. The sands that were in FAN were very, very fine grained and could not produce the oil. So it was noncommercial or probably noncommercial. So what could we get the oil from the basin up onto the shelf? Well, the next slide is a bit of the history that we all know that the SNE-1 well proved that the oil did go up onto the shelf. So that oil could migrate out and it could reach the same reservoirs that we found in Jammah #1. And the primary reservoir in SNE-1, and I'm going to avoid all the jargon, it was the top of the yellow section. Now that was a reservoir seal pair that were first encountered in Jammah #1. So here we are now proving that it can trap oil and gas. That was all very exciting. And where do you go next to try and replicate that success. Next slide. Well, for FAR, it was to go down into The Gambia along the same geological trend. And there you see the Samo structure. And that's pretty compelling. It's hard to ignore that, the chance to go into the same structure, same trend, same age rocks, and so that was the next well drilled in this sequence. The next slide. So the top of the yellow bit is the primary reservoir. And indeed, the reservoir was there, and there were good shows in the well. But unfortunately, the seal that was present in SNE and in Jammah was not present at the Samo location. And so the trap didn't work. And that's why we only had shows left. Go down deeper in the well, and there were shows towards the bottom of the well, which are intriguing because that's suggesting that the oil can come from the East as well as from the West. So quite significant that, that well set us off in a path of recognizing 2 different oil kitchens. And you go up above the reservoirs that were drilled in SNE. And you're finding oil shows beneath that yellow dotted line, the unconformity -- major regional unconformity surface. And that's telling us the oil charge gets up shallower than we had found in SNE. And there is an oil migration pathway up-dip. And then if you go up-dip, there's another one of these reservoir sealed pairs that was found in Jammah, top of the red, which is offering a structural closure. So with the shows in Samo telling us an oil charge is pass-through, that trap becomes quite attractive. And in fact, if that trap were filled to spill, it provides another mechanism or a pathway for hydrocarbon to get up into that up-dip closure at Jammah. So the story does seem to be coming together. We have the next slide, please. However, the absence of the seal at Samo was a bit of a kick and the next well was designed to be somewhat safer and to test the edge of the SNE accumulation itself as it -- where it extended across the border into The Gambia. Now what that meant was that the location of the well was constrained to a very small area, where the SNE Sangomar field extended into the Gambia. And that meant that all the other targets in the well from a positioning point of view, were slightly compromised. But perfectly understandable that you would want to test the extension of that field into The Gambia. You have the next slide. So again, we're looking at the top of the yellow sequence pleased to say that the seal was present and there were oil shows in the well. But unfortunately, it wasn't a reservoir facies here, all very frustrating combination of circumstances. In fact, it wasn't just shows in the well. The subsequent analysis and there's analysis still going on of this well. But the subsequent analysis, thing that wasn't clear at the time we drilled it is we think, is an oil column in Bambo. So the extension of the field is there, but there is not a reservoir, and so it is noncommercial. Again, then bottom of the well, we found the shows in those deeper reservoirs, giving us now fairly conclusive proof that there is a source rock -- an [indiscernible] source rock that sits to the east. So we have two different systems set up here. And again, just beneath that yellow one conformity higher up and above the primary reservoir, we got good oil shows. Now these shows have the characteristics of being a transition zone right next door to an oil column. So when you look up-dip, there is that same prospect that we inferred from Samo in the reservoir seal pair that we had already found in Jammah, the Panthera prospect. So we think that Bambo potentially hit the very edge of an accumulation that's sitting in the Panthera prospect. We have the next slide, please. Next slide. So we have this intriguing situation set up where the wells drilled to date have demonstrated the presence of these very prolific oil-prone source rocks in the west. And now we have evidence of another oil kitchen in the East so that we can come -- have oil coming from the East and the West. There are numerous reservoirs being intersected by these wells. There are ceiling rocks and there are viable traps. And the challenge, as ever in any basin is to find the combination of these things that work. So armed with all our new data, we're going back and considering what can we do to unlock this puzzle. What new technology is available to us given the new data that we have from these wells to help us better define the exploration risk and to select the best possible place to test it. So the Panthera prospect with critical supporting evidence provided by Jammah, Samo and Bambo is currently the highest-ranked prospect across the portfolio. But by the time we've done the science, that may change, but currently, that's our primary target. So as I noted before, we're now going through all that new data, and as I said, new data is actually still being generated from this well as the lab analysis goes on. We're having discussions with our joint venture partner about their future intentions and with the government to sit down and work out the best possible work program to take this project forward. Again, and I'll just remind you of the caveat here that the future drilling activity in this asset will be funded through the introduction of new investors into the joint venture. Thank you very much.

Thank you, Alan. I'd like to briefly talk about our strategy for 2022. In summarizing it, it's determine how the best realized value from our investment in The Gambia, explore a broad range of new business opportunities, minimize overhead and preserve capital, use capital management strategies to ensure share price better reflects the underlying asset value and maintain a focus on governance and ESG. I just like to expand on those. So focusing on The Gambia. As Alan has discussed, the well has proved -- have provided valuable information on this asset. The Board's strategy in 2022 is ensure shareholders can capitalize on this valuable data. We will work to conclude discussions with our joint venture partner and the government on the optimal path forward prior to permit expiry in September of this year. And depending on the nature of the transaction that might be secured, the Board will consider a separation of the assets by way of demerger into a separate stand-alone entity. Looking at our new business strategy, the Board and management team will explore a range of opportunities. The maintenance of status quo is not an option being considered by the Board. We're committed to exploring the options to progress our projects in The Gambia. And we're recognizing the dramatic acceleration of pace in the energy transition sector and creating new ways to invest in the energy business. The Board is considering new business initiatives in both the oil and gas and across the energy transition sector. But I think as a COVID, any significant new business initiatives must generate superior returns to shareholders than buybacks or capital return. If I look at the capital management strategy and overheads, we'll continue to minimize our overheads and preserve capital. We've budgeted to spend $6.8 million in 2022 on the licenses, the farmer activities, corporate and administration costs. We continue to focus on rightsizing the corporate structure. We will continue our capital management strategy to ensure our share price better reflects the underlying asset value, and we've taken the step to undertake a unmarketable parcel share buyback, which was announced yesterday from existing cash reserves. The buyback will remove the costs associated with small partial holdings in a value-accretive manner for the company. Turning to ESG. FAR is committed to managing our environmental, social and governance responsibilities. Talking to some of our ESG initiatives and success last year. The Bambo drilling campaign was completed with 0 lost time interests. The COVID management plan meant no delays were experienced on the rig. We're working towards making Bambo a carbon-neutral drilling campaign, and we'll finish that this year. And we've upgraded the local COVID click in Banjul. Trying to summarize that, looking forward, the Board with management will utilize the data and our knowledge of The Gambia assets to unlock value. We will evaluate new opportunities that offer significant potential for improved share price and return to shareholders. We will look to further reduce corporate overheads and consider capital management activities to maximize our shareholder value. The slide pack of the presentation will be available on the website but that's the normal case statistics for the company and the last slide which needs to be read is the disclaimer but I'll allow you to, at your leisure, read the typical disclaimer with any presentation. At this time I would just like to confirm the voting outcome that were not required. So it's been confirmed at this point the spill -- the conditional spill resolution is not required. Are there any questions? [ Alicia ] from?

[indiscernible].

Any questions from the floor? Thank you. We do have the opportunity at the end of the meeting for some tea and biscuits which will give us the opportunity for informal chat. But as there are no outstanding questions or comment virtually, and Computershare have advised a conditional resolution is not required. I will shortly close the meeting. The results of the vote will be available on our website and announced to ASX later in the day. I thank you for your participation. There being no further business, I declare the meeting closed. Thank you.