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Explainer: Australian minnow Far battles Woodside over West African oil spoils

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12/03/2019 | 11:23pm EST

A long-running dispute between two Australian partners in an oil field off Senegal is set to be resolved this month, just as the companies look to sign off on a $4.2 billion (3.3 billion pounds) plan to develop the West African nation's first oil project.

Oil minnow Far Ltd has been mired in a bitter row over the acquisition by Woodside Petroleum of a 35% stake in the Sangomar oil field from ConocoPhillips for $350 million in 2016.

Far went to the International Chamber of Commerce (ICC) in Paris in June 2017 seeking arbitration to resolve the dispute. A ruling is due by Dec. 28.

WHAT'S AT STAKE?

For Woodside the Sangomar project, formerly known as SNE, is key to boosting its output from 2023, ahead of two mega projects in Australia.

For minority partner Far, which discovered the field in the largest oil find of 2014, the development is set to be a company-maker.

Far contends it was not allowed to exercise its right to pre-empt the sale of Conoco's stake in the joint venture. If it had, Far would have been able to increase its 15% stake for what was considered a relatively cheap price.

Woodside Chief Executive Peter Coleman has called the claim "frivolous", while ConocoPhillips said it had complied with all applicable laws and the venture's Joint Operating Agreement.

"The arbitration initiated by FAR is without merit, and we intend to vigorously defend against it," a Conoco spokesman said in emailed comments.

WHAT COULD HAPPEN?

In the worst case for Woodside, the arbitrator would find that Far had a pre-emptive right and Woodside would need to sell all or part of its Sangomar stake to Far.

Analysts see a selldown as highly unlikely given Woodside is deeply involved in the project and has a key role as operator.

Even if the arbitration did clear the way for Far to buy Woodside's stake, the minnow, with a market capitalisation of A$289 million ($196 million), would be hard-pressed to stump up the cash for the stake.

If Far wins, analysts say the most likely outcome would be some form of compensation. That could include a cash payout from Conoco or Woodside, some agreement by Woodside to help fund Far's share of the capital cost of the project, or a combination of those.

Conoco said if the ICC ruled in Far's favour on the preliminary issues, the arbitration would continue.

WILL THIS AFFECT THE PROJECT?

The Sangomar partners, including Cairn Energy and the Senegalese state oil company, submitted plans to the government on Monday to proceed with the project, paving the way for final investment decisions later this month.

Resolution of the dispute should help clear the way for the minority partners to line up project finance by giving lenders more certainty about Woodside's role in Sangomar, say analysts.

Far's share of the capital cost of the project is estimated at $480 million. It has lined up a $350 million debt facility with Macquarie Bank and is looking to put in place a second debt facility.

WHAT IF FAR LOSES?

If the arbitration finds that Far had no pre-emptive rights, then it would be status quo for the partners.

Far's share price has dropped by nearly a third this year amid speculation it will have to sell new shares to fund its share of the project.

Far declined to comment ahead of the ruling. Woodside had no immediate comment.

By Sonali Paul

Stocks mentioned in the article
ChangeLast1st jan.
CAIRN ENERGY 1.71% 178.5 Delayed Quote.-12.93%
CONOCOPHILLIPS -0.34% 58.62 Delayed Quote.-9.86%
FAR LIMITED -8.82% 0.031 End-of-day quote.-22.73%
LONDON BRENT OIL -0.28% 57.16 Delayed Quote.-14.45%
MACQUARIE GROUP LIMITED -0.49% 148.58 End-of-day quote.8.31%
WOODSIDE PETROLEUM LTD -2.70% 32.83 End-of-day quote.-1.86%
WTI -0.17% 52.06 Delayed Quote.-16.22%
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