Faroe Petroleum Reports Six Month Results
Faroe Petroleum announces the Unaudited Interim Results for the six months to June 30, 2006 for Faroe Petroleum. Substantial progress was made during the first half of 2006, both strengthening the Company and building on its strategic asset position. Despite continuing high oil prices, the challenges of high rig utilization, increasing exploration costs and growing competition, we continue to make excellent progress towards our strategic goals.
As the Company continues to diversify and strengthen its portfolio, we are very pleased to have made a successful entry into Norway through the establishment of a new Norway team in Stavanger, and importantly to have satisfied the Norwegian authorities' pre-qualification requirements. As an addition to our existing focus areas, Norway offers considerable potential across a spread of opportunities from low risk appraisal to high impact exploration. We are also very pleased to have added a further seven licenses to our portfolio, taking it from 15 licenses at the beginning of the year to 22 licenses today. This was achieved through acquisitions in the UK Southern Gas Basin, as we seek to add low risk appraisal and development opportunities to our numerous high impact licenses in the Atlantic Margin.
We have continued to focus on advancing our operated licenses and also in positively influencing progress on our non-operated licenses. In addition, we have increased the level of resource focused on identifying new opportunities in our core areas. This has included work in respect of new license applications, such as the UK 24th Licensing Round and the Norwegian APA 2006 Licensing Round as well as in pursuing potential acquisitions.
Faroe Petroleum has over several years successfully built a strong Atlantic Margin portfolio with material stakes and in partnership with some of the most successful major oil companies in the world, including BP, Chevron, DONG, Eni, OMV, Shell and Statoil. The Atlantic Margin is experiencing something of a "renaissance" following successful discoveries by Chevron and Amerada Hess in recent years, the successful appraisal of the Laggan gas field and the long-awaited development of the giant Clair oil field. Faroe Petroleum's primary objective is to create value through the commercial exploitation of its asset base. This involves building upon and leveraging the strengths of the Company's relationships, reputation, portfolio position, financial position and its highly competent team.
Faroe Petroleum prioritizes the management of its portfolio in order to constantly improve the balance among risk, reward and timetable, across its assets. The Company aims to ensure participation in a highly material and dynamic drilling program of quality opportunities, and in a timely manner.
Faroe Petroleum's recent strategic entry into Norway puts it in an excellent position to build a new portfolio in Norway to complement the Atlantic Margin and North Sea properties through basin diversification. The Company's decision to enter Norway relates principally to Norway's vast potential for finding new resources, its outstanding exploration success rate and the fact that it remains very much an under-explored province. Norway has also recently implemented a favorable tax structure designed to encourage new exploration. We believe the combination of our extensive knowledge of Norway, our good relationships with the authorities there and with many significant Norway-focused oil companies greatly enhances our potential to achieve success in this country.
With the UK's demand for indigenous gas continuing to grow, the Board decided to acquire a small number of gas interests in the UK Southern Gas Basin in order to introduce gas plays into the portfolio, as part of our strategy of selective risk diversification. In each of the Breagh, Orca and Minke fields, Faroe Petroleum has secured interests in low risk appraisal and development opportunities with modest cost exposure from Sterling Resources and ConocoPhillips respectively. These opportunities are intended to lead to near term value generation including cash-flow, in addition to providing further exploration upside.
Participation in appraising the Breagh gas discovery provides relatively low risk scope to move to a near-term gas field development. The Orca and Minke package consists of three undeveloped discoveries, the Minke Main, Minke Graben and Orca gas fields, all of which are expected to be sanctioned for development in the near future. Any cash flow from these gas fields will contribute towards operating costs and provide tax-efficiencies in respect of the Company's carried forward exploration losses.
Faroe Petroleum has also been very active in building a strong knowledge-base and understanding of sub-basalt exploration through the many ground-breaking activities on its 11 licenses in the Atlantic Margin, including the application of long-offset, "over-under" seismic, electromagnetic survey techniques and sub-basalt drilling. Sub-basalt exploration is becoming an increasingly important area for deeper water exploration, involving the use of new technologies to identify and probe prospects beneath the basalt (a dense igneous rock type found across the Atlantic Margin). Our new Norway team also contributes significant technological know-how and expertise, notably in the emerging area of 4D seismic interpretation. The Company intends to use its technical edge and commercial strengths progressively across its portfolio and also, where possible, to open up new opportunities for value creation.
On September 6th it was announced that Faroe Petroleum had formed an exclusive strategic joint venture with a UK subsidiary of Liberty Energy Holdings LLC ('LEH'), which is a subsidiary of Liberty Mutual Group, to consider and, potentially, acquire and exploit proven undeveloped discoveries in the UK North Sea. LEH, which is a significant insurance company based in Boston, USA, 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. 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% in any selected investment opportunities, and with an entitlement to increase its participation to 50% through a pre-agreed option arrangement with LEH.
Following the successful equity-placing in April, raising £25.0 million before expenses, the Group had cash reserves of £42.4 million at June 30, 2006 (2005: £23.9 million) and has adequate funds to meet all firm work program commitments. The Company placed 18,382,353 new ordinary shares at 136 pence per share (£23.5 million net of expenses). The funds are expected to give Faroe Petroleum sufficient capital to invest in the first phase of drilling over the coming period. The Group made a loss of £1.0 million in the period (June 30, 2005: £0.3 million reflecting increased activity and unrealised foreign exchange losses of £0.5 million. The Board of Directors does not recommend the payment of a dividend.
2006 has so far been successful for Faroe Petroleum in growing and maturing the portfolio, with the addition of seven new licenses in the UK and Dutch North Sea, and the prospect of securing further licenses in both the UK and Norway over coming months.
The Group now has important strategic positions in the Atlantic Margin, notably with four licenses on the highly prospective Corona Ridge, and the North Sea. As operator with significant stakes in seven of its 22 licenses, the Company is responsible for a substantial technical work program.
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