Junior oil and gas explorer FAR Ltd (ASX: FAR) has seen its shares explode higher today, up 40% at 14 cents, as we head into the close.
In the past 8-weeks, shares in FAR have climbed 271%, and the company's market cap now stands at around $270 million.
Just yesterday, the company announced a significant oil discovery 100km off the coast of Senegal. The company's managing director Cath Norman says it could be 'transformational' for FAR. "We have encountered a very substantial oil bearing interval which has potential to be a significant standalone development."
FAR has a 15% in three exploration blocks offshore Senegal, with UK-listed Cairn Energy holding 40% and the designated operator, while ConocoPhillips holds 35%. Petrosen, the national oil company of Senegal holds the remaining 10%.
The company says the three blocks could hold as much as 3.585 billion barrels of oil, although Cairn Energy notes the FAN-1 well in one of the bocks has a mean gross estimate of 900 million barrels.
But there's a long way to go before FAR and its partners can commercialise those fields, and that will likely be at significant cost and extended period of time. Shareholders could expect many a capital raising between now and then. There's also no guarantee that the partners will be able to produce oil from the wells at a decent profit.
Oil prices have slipped in recent times, and as I wrote earlier this week, much depends on the outcome of the OPEC meeting of key oil ministers next month. If they decide to cut production, oil prices should rise, but already divisions have developed in OPEC, with some ministers keen to cut, while others are not.
FAR could well go on to become a significant oil producer. Unfortunately, the number of successful oil and gas companies in Australia are heavily outnumbered by those that promised much and failed to deliver.
We wish the company every success, but FAR remains a speculative investment and Foolish investors may want to instead look at profitable, producing oil and gas companies such as Santos Limited (ASX: STO), Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH). All three have diversified assets, including oil, gas and LNG.
