Faroe Petroleum Forms JV for North Sea Exploration

UK North Sea
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Faroe Petroleum has formed an exclusive strategic joint venture with a UK subsidiary of Liberty Energy Holdings, LLC ("LEH"), which is a subsidiary of Liberty Mutual Group ("LMG"), to consider and, potentially, acquire and exploit proven undeveloped discoveries in the UK North Sea. LEH has an established track record of investment in upstream oil and gas assets in North America, and through this joint venture intends to expand its operations to the UK North Sea.

Boston-based LMG is a leading global insurer and as of December 31, 2005, had $79 billion in consolidated assets, $70 billion in consolidated liabilities and $21 billion in annual consolidated revenue.

The joint venture will have access to considerable funds to invest in this important activity. Faroe Petroleum will play a lead role in bringing suitable opportunities to the joint venture. LEH will initially invest the majority of the joint venture's capital requirements in acquiring any such opportunities. The investment model allows for Faroe to participate with no less than 20% participation in any selected investment opportunities, and with an entitlement to increase its participation to 50% through a pre-agreed option arrangement with LEH.

This innovative new joint venture potentially gives Faroe a significant advantage, in its pursuit of the following key objectives:

  • To pursue more, larger appraisal/development opportunities than might be possible alone, due to the strong financing arrangements in place with LEH, which should significantly mitigate perceived completion risk for asset vendors;
  • To have the ability to secure a material stake in licenses without an immediate need to raise capital; and
  • To diversify the risk profile of our now substantial exploration and appraisal portfolio, and to add shareholder value in the near term.

Graham Stewart, chief executive of Faroe Petroleum said:

"In the face of increasing competition for attractive lower risk projects, this joint venture represents a very exciting opportunity for Faroe to accelerate value creation in the North Sea. We have designed this new business model to give us an edge in acquiring substantial interests in appraisal and development properties in the UK North Sea, and are delighted to have attracted such a strong and reputable corporation as major co-venturer. We are already considering a number of opportunities together, and look forward to reporting progress in the near term."

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