CHASING ELEPHANTS in offshore West Africa
Have you ever seen an offshore elephant?
First Australian Resources Limited (FAR), a West Australian exploration-focused miner working on the West African offshore coast, knows more about this rare spectacle than most.
This ASX-listed company, founded in 1984, is made up of about 5,500 shareholders and has a market capitalisation of around A$45 million. Michael Evans, CEO, spoke to IRJ about FAR’s exciting principal projects and, “chasing elephants in West Africa.”
FAR’s Senegal project
The first of FAR’s flagships is the deepwater exploration project in offshore Senegal. By deepwater, Evans explains, it is in water depths of approximately 1,500 metres.
“FAR became involved in 2006 and we shot a 3D seismic programme there which covered an area of 2,050 square kilometres at a cost of US$14 million—the largest 3D survey conducted offshore Senegal,” he says.
“As a consequence of that we matured a number of prospects to drill. The prospects range in size up to a billion barrels of potential, so it’s very large and for a company of our size, that’s significant. We’re a small company playing a big man’s game.”
The Senegal acreage spans 7,490 square kilometres and includes three concessions, on which FAR as the blocks operator has a number of drilling targets.
“Our equity is 90 per cent. We brought Shell into that project early last year and they conducted an exploration programme there called seabed logging, before electing not to go to the drilling phase. That’s the phase that we’re approaching,” Evans says.
“Currently our company is talking to a number of large international exploration and production companies with a view to come in and join us to drill a deepwater well offshore there. Those wells can cost anywhere up to US$60 million, but of course the prize is very large.”
FAR’s partner on this Senegal project is Petrosen, the national oil company of Senegal. FAR enjoys a great relationship with Petrosen and Evans says that in working closely with them as an operator, FAR is also promoting the country.
“In February we’ll be taking a booth at the North American Prospect Expo, NAPE, in Houston, Texas. We’ll be profiling the country in our booth. We do a lot to promote Senegal, and as a consequence we’ve enjoyed a very good relationship with them at the national oil company level,” he says.
“At the ministry level, we were recently granted a one-year extension to our oil licenses which enables us to find a drilling partner. That came from the minister and was followed up with a presidential decree.”
Evans says that this process has been very efficient and FAR is pleased with the way it has been handled both on the company’s own part and on that of the Senegalese government.
“The fact that Shell came along, possibly the largest oil company in the world, and knocked on our door to come and work with us is indicative of the sort of potential that exists where we’re looking for oil here,” he says.
FAR’s Guinea Bissau project
Evans explains that when FAR goes to talk with companies about joint venture exploration programmes, the companies it targets tend to be quite large due to the budget requirements for drilling deepwater wells.
“We commenced dialogue with a company called Svenska, and they operate three blocks in offshore Guinea Bissau. The water depths there vary but they go all the way from 10 metres to 1,000 metres,” he says.
“Through that process we are doing some due diligence work. We identified an opportunity there in that the previous owners of those blocks were Premier Energy and Occidental (Oxy). Together they had undertaken drilling on the blocks and made a discovery called Sinapa.”
Sinapa weighs in at 240 million barrels of oil in place, making this a large and attractive project which FAR believes has potential for commercialisation. Evans points out that the toughest part of exploration—finding the oil in the first place—has already been done for this project.
“That makes these particular blocks very attractive and they have a number of other undrilled prospects on them. One of those is called Sardinha and that’s a 219 million barrel target, so also a sizeable target,” he says.
“Whilst the water depth at Sardinha in greater than 100 metres, the beauty of Sinapa is that it’s in about 30 metres of water so it can be drilled without needing to use deepwater drilling ships, so the cost of drilling is less.”
FAR acquired its 15 per cent interest in this project from Delek, an Israeli company, on December 18, 2009. Delek had elected to focus on a large gas discovery it had made in the Middle East. This Guinea Bissau project was no longer a core asset for Delek and FAR seized the opportunity to pick it up and take over the share.
Guinea Bissau has endured political unrest of late. Evans says that while the recent state of instability puts an understandable question mark in the minds of many people looking at the country, it also generates an opportunity.
“There are some companies who might take the view that they won’t go and invest in the country, but we consider ourselves very opportunistic and very cautious and we think that there will be a turnaround there as a consequence of that upheaval,” he says.
“We’re also comforted by the fact that Senegal as a country has an area which is called the Zone of Cooperation, the AGC. It’s an area where their maritime boundaries overlap and Senegal and Guinea Bissau work together as a group to conduct exploration there, and we benefit from that process.”
This cooperation between both Senegal and Guinea Bissau is a comforting and encouraging step for companies such as FAR who are involved in both countries.
A surge of elephants
Evans says that in light of the many exciting events along the Central Atlantic Margin of West Africa in the past year, focusing their exploration work in West Africa was a clear decision for FAR.
“A lot of big discoveries have been made, the most recent of which was by Anadarko in Sierra Leone. Then if you go further South, there’s Tullow who made a very large potentially two billion barrel discovery in offshore Ghana,” he says.
“Then further down you go to the area of Africa known as the armpit, where huge quantities of oil are being discovered. Really what’s happening is that the area where we are in West Africa is considered to be relatively under-explored compared to those areas down by Gabon, Angola and Nigeria.”
FAR has identified equally promising opportunities in Senegal and Guinea Bissau to those of these oil mapped countries in West Africa. Evans says that there will be large quantities of oil found in Senegal and Guinea Bissau, however the amount of exploration that has been done to date is quite limited.
“Therefore the opportunity is quite attractive and the ability to become involved is more commercially attractive too, we don’t have to pay the large bonuses that companies do when they bid for mature acreage,” he explains.
“The potential of a discovery for a company like us is significant for putting FAR on the map of global explorers and our shareholders want us to take these risks. It’s a high risk, high reward strategy but with a planned low entry. Our dollars are the early dollars and we look for partners when it comes to the drilling phase.”
FAR’s mission to generate shareholder wealth and drill down to specific goals remains strong.
“We want to put a large discovery on the map in offshore West Africa,” Evans states.
“People often ask, ‘where are you going?’ And we say, “’we’re going FAR.’”
Given recent discoveries in West Africa, the shareholder support and big business interest in their projects, and exemplary partnerships with local companies and governments, this is just the beginning of FAR’s promising quest to find those elephants.