Ann: Half-Year 2018 Results and Briefing Pack, page-10

AFR Article..
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Woodside inflames tensions in Senegal oil venture

Aug 19 2018 at 11:00 PM
Updated Aug 19 2018 at 11:00 PM


FAR Ltd chief executive Cath Norman insists the junior explorer won't be bullied by Woodside Petroleum, its major partner in a $US2 billion ($2.7 billion) oil project in Senegal, into dropping its claim over pre-emptive rights in the venture even as the partners approach crucial negotiations over funding.

Woodside CEO Peter Coleman said in an interview last week that the arbitration being pursued by FAR over the rights is deterring potential lenders, raising "serious concerns about or junior partners and their ability to fund" the SNE project.

He described the explorer's pursuit of the arbitration as "frivolous and opportunistic", and said it is "creating an impediment to their own ability to fund the project".

"I just find that unbelievable, to be quite frank," Mr Coleman said after Woodside's first-half profit report.

But Ms Norman rejected that stance. "No banks or potential lenders have come back to FAR and said they won't participate in any financing in FAR because of the arbitration," she said from Melbourne.

"He may be using that in the marketplace as a tool to try and put pressure on FAR but we are not backing off pursuing the arbitration."

FAR initiated the dispute resolution process last year in the belief its pre-emptive rights over a 35 per cent stake in SNE that ConocoPhillips sold to Woodside for $US430 million were ignored. FAR, which has a market value of about $683 million, about one 50th of Woodside's, owns 15 per cent of SNE, its most advanced development project.

Mr Coleman noted the arbitration won't be completed until 2020, yet the funding for SNE needs to be in place by the first half of 2019. He said Woodside would protect its rights in the SNE project, without giving details.

Mr Coleman said Woodside is aligned with the other senior partner in the venture, Cairn Energy, and suggested FAR initiated the arbitration in the hope of reaching a financial settlement, something he would not entertain.

"They felt that they would be taken out commercially they are not going to be taken out commercially, that's not in the best interests of Woodside shareholders," he said.

"So simply give money over on an arbitration we think has no basis at all? I'm just not into that business of paying greenmail, I'm sorry."

But Ms Norman said going to the court of arbitration was FAR's "only alternative" because neither Conoco nor Woodside had approached it to seek to resolve the issue beforehand.

"We gave the other side plenty of time to come to us and sit and talk and reach an amicable solution and they didn't," she said. "At no stage have we said we want a commercial settlement."

Options available

She ruled out FAR angling to be taken over, pointing to the upcoming drilling in October of the huge 800 million barrel Samo exploration prospect in Senegal. FAR's share of the circa $US45 million well, which is being given a high 50 per cent chance of success, is being covered by Malaysian partner Petronas.

"Our interest in that Gambian project has the ability to dwarf our investment in Senegal," she said. "Why would I be encouraging someone to take over FAR today?" Ms Norman said if Sumo makes the targeted discovery, "our financing is going to be very straightforward"but that FAR has several options even if the well isn't successful.

"If [Mr Coleman]] is worried about our ability to fund, he shouldn't worry," she said. "I think that we are probably in a better position than most of our partners in terms of understanding how to finance a Senegalese project. We are not dependent on a joint venture solution."

A final investment decision in the SNE project, which could produce 100,000 barrels a day of oil, is targeted for the June quarter of 2019, with start-up in 2022.