27 May 2020
FAR Ltd is an oil and gas exploration company, with one major project nearing development: the Sangomar oil field off Senegal’s coast.
With the company’s entire business model predicated on new oil and gas developments that cannot be burned in a 1.5°C warming scenario, Market Forces has identified FAR as one of the 22 big Australian companies undermining the climate goals of the Paris Agreement.
That said, it’s hard to define FAR as a ‘big’ company these days, as it has lost so much value recently that it no longer sits in the top 300 companies listed on the Australian share market (ASX 300).
Our recent analysis shows FAR shares had dropped 77% in value over the last 10 years, and almost 50% since the coronavirus and oil price crises hit the market. These recent events have also derailed FAR’s attempts to secure funding for the Senegal project.
Testing for value in a 1.5°C pathway
FAR’s value as a company is made up of its oil and gas exploration projects, with the Sangomar project providing the vast majority of that value. According to analysis of the Paris Agreement’s 1.5°C warming target, “Any production from new oil and gas fields, beyond those already in production or development, is incompatible with limiting warming to 1.5°C.”
At the company’s annual general meeting today, FAR Chair Nic Limb acknowledged the 1.5°C Paris goal requires emissions to halve by 2030 and reach net-zero by 2050, but stated: “That seems very unlikely to me without major coordinated global government efforts, which doesn’t look very likely to me.”
Like its Chair, FAR appears willing to bet against the ambition of almost 200 nations that have signed up to the Paris Agreement, as the company continues to pursue projects that are incompatible with with a 1.5°C warming pathway.
A shareholder asked if FAR, or its auditors, tested these assets for impairment under different climate change pathways and corresponding product demand scenarios, including one in which global warming is limited to 1.5°C.
Mr Limb confirmed that impairment testing was being undertaken on the Sangomar project, including carbon price assumptions that can be adjusted for various scenarios. He did not go so far as to say that carbon prices consistent with a 1.5°C scenario had been tested.
Mr Limb went on to suggest impairment testing was of “dubious value” to shareholders. Given FAR’s poor recent performance and total reliance on developing new oil and gas fields that are inconsistent with the Paris climate goals, the company may know a thing or two about the “dubious value” of its projects.
Tell your super fund to ditch climate-wrecking fossil fuel companies like FAR
Finance more difficult to come by
FAR’s annual report identifies “climate-related risk in… the provision of both equity and debt to oil and gas developments as a material risk to the Group,” and also recognises that if the company is unsuccessful in raising funds there is doubt as to FAR’s ability to continue as a going concern.
Given an ever-increasing number of financial institutions are moving to align their investments with the goals of the Paris Agreement, and the Covid-induced delay to FAR’s projects, the question was put to the company at its AGM: is FAR likely to attract the funding it needs to continue as a going concern?
Mr Limb’s response recognised the increasing impacts and risks of finance being withheld from fossil fuel operations, particularly from public-facing financial institutions. Mr Limb went on to say: “What we’ve observed is that finance hasn’t gone away, it’s just moved to less public-facing locations,” citing private equity firms and specialist debt funds and noting “a lot of those people who are publicly withdrawing are of course funding some of these entities.”