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Opportunities for acquisition

Faroe chief says oil price on upward trend

Graham StewartOil explorer Faroe Petroleum expects the oil price to continue rising and sees the current low price as an opportunity for acquisitions.

In a joint statement with half-year results chairman John Bentley and chief executive Graham Stewart (pictured) say the oil price “has been on a fairly steady upward trend, reaching approximately $50 per barrel at the close of the half year.

“The market now appears to be at a point where supply and demand are approaching balance, following a period of substantial global oversupply, and expectations are that an upward trend in oil prices is likely to emerge albeit at a slow rate due to the accumulated stock overhang.

“The market is expected to remain challenging for some time, and for E&P companies with access to capital, this is an opportune time to progress projects benefiting from substantial cost reductions and to grow through acquisition.”

The Aberdeen company completed the half-year period on a high note with the significant Brasse discovery in Norway in which Faroe is operator and a 50% shareholder.

“Brasse has the potential to become a cornerstone asset in our portfolio,” said the company. 

In July 2016 it acquired from Dong a package of four producing oil and gas fields in Norway for a $70.2 million, which is set to more than double current production.

A share placing to raise £66 million, before expenses was oversubscribed. 

“These three key achievements have propelled the company forward to its next phase of growth and put us on track to become a leading independent North Sea E&P company,” it said.

“Faroe’s strategy is to grow value from reserves and resources through monetising exploration and appraisal successes, selectively participating in development projects and pursuing value accretive asset transactions. 

“This strategy and business model, underpinned by cash flow from good quality low-cost production, a strong balance sheet and rigorous financial discipline, has delivered exceptional results for Faroe, creating a strong platform for continued growth benefiting from significant sector-wide cost reduction. 

“The Group will also continue to pursue its successful exploration strategy, funded from cash flow and Norwegian fiscal incentives.”

Highlights

·      Revenue £23.1 million (H1 2015: £51.1 million) and EBITDAX £16.8 million (H1 2015: £39.8 million)

·      Realised hedging gains of £4.1 million net after premium (H1 2015: £4.2 million) – mainly on gas sales

·      Operating loss £34.3 million (H1 2015: £5.6 million profit) and loss after tax £13.0 million (H1 2015: £6.7 million) – reflecting lower revenue and higher expensed exploration costs

·      Exploration and appraisal capex £14.8 million (H1 2015: £25.2 million), excluding Kvalross which was expensed in the period, equivalent to net £3.7 million (H1 2015: £6.3 million) on a post-tax basis, taking account of 78% Norway exploration tax rebate

·      Cash and net cash at 30 June 2016 £83.9 million and £60.9 million respectively (31 December 2015: £91.5 million and £68.5 million), excluding the subsequent placing and open offer

·      Reserve based lending facility in place, of which £23 million is drawn (31 December 2015: £23 million)

·      Raised £66.0 million, before expenses, in share placing and open offer in July and August 2016, to fund acquisition from DONG and to accelerate Brasse discovery towards development



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