Faroe Takes Stake in Eni's North Sea Field
Faroe has agreed to acquire an 18.0% interest in the Blane oil field from ENI UK Limited and ENI ULX.
The headline consideration for the acquisition, calculated from the effective date of 1 July 2010 is £60 million, prior to working capital adjustments to completion, payable to the Vendors in cash together with the farm out, on promoted terms, of a 20% interest in three Atlantic Margin exploration licenses.
The Consideration is to be funded from cash and bank debt drawn against the Company's borrowing base facility.
The Acquisition is also subject to joint venture partner consent, the resolution of preemption rights and regulatory approval.
The Blane Oil Field (P111-Block 30/3a (Upper), UK North Sea) was discovered in 1989, and is located on the Central Graben of the UK continental shelf, extending into the Norwegian sector. Production commenced in September 2007 from a Tertiary Palaeocene Forties sands reservoir with a structural closure. The field has been developed as a sub-sea tie-back to the BP-operated Ula platform located in the Norwegian continental shelf (34 kilometers to the north east) and currently comprises two horizontal production wells with gas lift and one water injection well.
Blane is a low-cost producing field with average gross production rates during September 2010 of 11,964 barrels of oil equivalent per day (boepd) (net production 2,154 boepd), taking group production to over 3,000 boepd. Remaining 2P reserves, as evaluated by Faroe Petroleum's reserves auditors Senergy (GB) Limited, as at 30 June 2010 were 3.0 million barrels of oil equivalent net to Faroe Petroleum, which corresponds to an acquisition cost of $17.5/boe when incorporating tax synergies. These tax synergies include brought forward tax losses of approximately £57 million (at 30 June 2010) from historical exploration, and the extinguishment of the £4.5 million Capital Gains Tax liability from the sale of the Breagh Gas field to RWE in August 2009. Furthermore, Faroe Petroleum recognizes upside potential in the existing reserves, through a combination of outperformance of the existing development, and the potential for further in-fill drilling. Joint venture partners in the field are Talisman Resources (43.0% and operator), Roc Oil (12.5%), Nippon Oil (14.0%) and Dana Petroleum (12.50%).
As part of the transaction Faroe Petroleum has also agreed to assign to the Vendors under a farm out agreement, on promoted terms, a 20% interest in the Atlantic Margin Rannva exploration licenses (Faroese Licenses 012 and 017 and UKCS license P.1740) which straddle the UK/Faroe border. These prospective licenses cover some 2,794 square kilometers and are located in around 500 meters water depth, approximately 170 kilometers west of the BP operated Schiehallion oilfield. The Rannva licenses (Faroe Petroleum 100% and operator) contain two giant prospects along the axis of the Wyville-Thomson Ridge - one of the largest un-drilled anticlines in North West Europe. Continuing technical work is underway across these licenses in order to define a well location.
Faroe Petroleum further announces the increase in its stake in the producing Schooner gas field to 6.96%. This, together with the Acquisition, helps deliver on the Company's stated intention to acquire further production, as set out in the Rights Issue prospectus earlier this year.
Graham Stewart, Chief Executive of Faroe, commented, "We are delighted to be able to broaden our portfolio through the acquisition of the Blane Interest and significantly boost our oil and gas revenue generation capacity with the addition of this high quality producing oil field. Blane is a field we know very well - it is a low risk, low opex operation but with exciting potential upside. Furthermore the transaction is very tax efficient for Faroe Petroleum, providing shelter for both past and future tax losses and eliminating the Capital Gains Tax liability from the sale of Breagh.
"As we proceed with operations on the ENI-operated Anne Marie exploration well, in the Faroe Islands and the Chevron-operated Lagavulin exploration well west of the Shetlands, we are pleased to bring in a new partner in the Joint Venture for the Rannva licenses. Straddling the UK and the Faroe Islands, these licenses hold two high impact exploration prospects, and the potential for substantial resources from the opening of a new hydrocarbon play."
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