Cath Norman, Managing Director from FAR Limited, Africa E&P Summit 2019
Interview Conducted by Our Summit Journalist, Ed Reed
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ER: So, Cath Norman, things have gone through a rough patch in Africa exploration wise, are things now looking better?
CN: Well they certainly are. As you may have seen at the conference, there are a number of companies that are preparing to drill frontier exploration wells and always when the oil price drops off, the first part of the business to suffer is the frontier exploration whilst people are sorting out the cashflow part of the business, which is the revenue-earning side, it’s easy just to forget about frontier exploration. But you pay for that five, six years down the track when you haven’t been replacing reserves with discoveries. So you can see now that most of the major companies have started drilling frontier wells.
ER: So is there a counter cyclical appeal for you?
CN: Always. Part of it is that when you’ve gone through a slump like we have in the last five years, a lot of the costs of exploration come right off and the main one of course is drilling costs. So where you were hiring a, sort of, deepwater drill rig for about US$680,000 plus a day, you can get that same rig for half the price now.
ER: What sort of a leap of faith does it take to go to a new country like, Senegal back in 2006?
CN: I think it takes a bit of backing yourself, to be honest. So, I have a great exploration team and we’re a tight, small unit and our philosophy has always been about going casting because there’s no way we can compete with an Exxon or a Shell, if they’re interested in the same frontier acreage as us, mostly because they can promise the government that they can bring a cradle-to-the-grave development. You just have to back yourself. We’ve got, I think I said in my talk, some great shareholders who back us to go for these projects and statistically, if we had half a dozen of them and you’re drilling 5 frontier wells in different basins, one of them is probably going to come in.
ER: In Senegal, obviously you’re working the SNE development with FID hoped for by the end of the year. Beyond that, what sort of exploration in Senegal have you got?
CN: Outside the SNE field we made three other independent discoveries. We’ve got a deepwater fan play that is within tieback range of the SNE hub and we’ve got a discovery we call SNE North, which needs some appraisal wells drilled and is also within tieback range of SNE. We’ve not only applied for an exploitation licence, from the government on SNE, but we’ve also applied for an evaluation licence for the other discoveries we’ve made. That’s pending approval, but it’s likely that we’ll get a couple of years to work out those appraisal wells and eventually bring them on to the SNE development in future phases. So, Phase 1 is the core of the SNE field, Phase 2 is really stepping out and tapping into oil on the flanks of the field and then Phase 3 will be tying-back in other discoveries that we’ve made.
ER: Beyond Senegal, you drilled the Samo well and that didn’t quite work out. Have you got plans to continue hunting in The Gambia?
CN: The Samo well was just a step too far. The wild geology just threw out our seismic, so we drilled off the main structure. It’s likely that Petronas, our partners and ourselves will drill back closer to SNE, in fact the SNE field extends into The Gambia and it’s likely we’ll go and drill the barrels of oil in SNE on the Gambian side next. Stake our claim.
ER: How’s Guinea Bissau shaping up?
CN: That’s shaping up well. So, Svenska, our operator have around 80% working interest, we have around 20%. Svenska have just gone through a farm-down process and they’re in the process of bringing a partner in. Can’t say who that is yet because it’s not been announced. And the plan is that we’ll drill a well in the first quarter of next year as a joint venture. We were always looking at the play that sat close to the coastline, where there’s proven oil in Guinea Bissau, but given the SNE discovery, we’ve changed our attention to look at the deeper water plays. We think that there’s probably some trapping mirrors to the south.
ER: How is the SNE development to be financed?
CN: At the moment, what it’s looking like being is, there’s about US$3 billion of capex to get Phase 1 up and running and the joint venture for two years now has been working on a project financing exercise and that’ll see about half of that capex funded through project finance debt. The other half will be up to each individual partner to raise their share of the equity component.
ER: What do you think is the biggest challenge, both for you and for the industry as a whole?
CN: For FAR, it’s always around access to capital. Access to capital and attaining capital at the right price. We’ve been very lucky that every time we’ve needed to raise money or wanted to raise money, we haven’t had that problem. I can see that access to capital is going to get tighter, not only for FAR, but for everybody as we move towards a less hydrocarbon-dominated energy view – or at least the perceived view will be that we don’t want to be in hydrocarbons any more. I think that maybe we’ve overshot a little bit in that view and I think maybe some common sense will come back and say, well, hydrocarbons need to be part of the energy mix.
CN: The days of making a big discovery and then being able to raise money on that and go do more and grow your company based on your big discovery or sell out and return money to shareholders or whatever, are gone, so if you make a discovery now, you have to worry about how you’re going to finance the appraisal and how you’re going to finance the development and you could be five years away. Big oil companies haven’t been buying those discovered resources for the last five years and I think you’ll see that changing.