Oil and gas explorer FAR Ltd (ASX: FAR) has seen its share price soar 36% today to 13.5 cents, after the company announced a 'second significant oil discovery'.
The company advised the ASX today that it had discovered more oil in its tenements offshore Senegal, Africa.
The SNE-1 well is reported to have found a 95 metre gross oil bearing column, with FAR managing director Cath Norman saying, "This is another very significant oil find for FAR and Senegal. Based on preliminary estimates it is highly likely to be a commercial discovery." The SNE-1 well is around 100kms offshore Senegal, in water over 1km deep.
FAR's results have been nothing short of miraculous. The company has found oil in both wells it has drilled in Senegal. A 100% success rate is phenomenal, especially for the first two wells. They are the first offshore wells to be drilled in Senegalese waters in more than 20 years.
The company has 3 offshore blocks, covering around 7,500 square kilometres, and says it has discovered 11 potentially drillable prospects. In February 2013, FAR estimated that these blocks could hold as much as 3.6 billion barrels of oil, of which 538 million would be attributable to the company. FAR has a 15% interest in the blocks, in conjunction with Cairn Energy, ConocoPhillips and Petrosen – The Senegalese National Oil Company.
Since the beginning of this year, FAR's shares have shot up 250%, thanks to the two oil discoveries. But retail shareholders have reasons to be unhappy. As the company's share price soared, FAR raised more capital from institutional shareholders last month, issuing more than 420 million new shares at an 18.5% discount to the prevailing share price, as we warned in early October.
Retail and small investors were not offered an opportunity to participate, with management treating their smaller shareholders unfairly. It's the second time since June 2014 that FAR's board has snubbed retail investors.
And with plenty of water to flow under the bridge before the prospects above are commercialised, and likely more capital raisings and preferential placements, long-term investors will be lucky to see a decent return on their funds. They could be forgiven for selling out now and investing in less riskier oil and gas companies that are already profitable – and therefore have little or no need to continually raise capital and dilute their shareholdings.
