Faroe Notes Progress on Petoro Asset Swap
Faroe provided an update on the Petoro asset swap deal as follows:
- The transaction was passed by the Norwegian Parliament on June 17, 2011 and completion is expected in the Autumn
- Average net production from the Petoro Assets in the six month period January 1 to June 30, 2011 was approximately 8,400 boed
- 3.2 million boe of additional reserves net to Faroe's acquired interest in Njord since signing the Petoro Asset swap, expected to result from sanctioning of two new projects
On April 11, 2011, Faroe announced that it had signed an agreement with Petoro AS to swap its 30% interest in the significant Maria oil discovery for non‐operated interests in a number of good quality oil and gas production assets in Norway, namely in Brage, Njord, Ringhorne East and Jotun (the Petoro Assets).
Average net production from the Petoro Assets in the six month period January 1 to June 30, 2011 was approximately 8,400 boed. This high level of production has been achieved despite a technical problem with the riser system in Njord, which caused several production wells to be shut in for a period. Following the completed repairs, Njord is expected to be back on full production in 3Q 2011.
On May 12, 2011, a Field Development Plan (FDP) was submitted for the Hyme oil field, and this has already been approved by the Norwegian Ministry of Petroleum and Energy. Faroe will have a 7.5% net interest in the Hyme development (previously named Gygrid), located to the east of Njord. First oil from Hyme is expected in early 2013. The field will be developed with one dual‐lateral producer and a water injector sub‐sea tied back to the Njord field. In addition, the Njord partnership has sanctioned a project to allow continued production at lower pressure and extended field life. These two projects will add 3.2 million boe of 2P reserves and come as an addition to the 14 million boe of 2P reserves reported by the Company on April 11. Net Faroe capital expenditure on these projects is expected to be approximately £42 million, to be funded principally through a combination of cash flow from the Petoro Assets and bank debt.
The transaction was an asset for asset swap with no cash consideration from either party, and an effective date of January 1, 2011. Through this transaction, Faroe avoids the net capital investment of approximately £250 million required to appraise and develop Maria. Petoro retains the majority of decommissioning and abandonment liabilities in the Petoro Assets and have transferred a tax balance of NOK 400 million (approximately £46 million). The deal is conditional upon approval by the Norwegian authorities; the transaction was passed by the Norwegian Parliament on 17th June 2011 and completion is expected in the Autumn.
Graham Stewart, Chief Executive of Faroe Petroleum, commented, "We are very pleased with progress of the Petoro transaction. We are also encouraged by the higher than expected production rates of the fields we are acquiring during the first half of the year.
"We now look forward to a very exciting period of drilling ahead with four wells in the second half alone, starting with Fulla results, due in August 2011."
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