Faroe to Maximize North Sea Returns for Shareholders
Faroe Petroleum has agreed to acquire from First Oil Expro an 18.75% equity stake (representing 50% of First Oil's equity stake) in the Wissey gas field development project in the Southern North Sea. The acquisition is in line with the Company's stated strategy of diversifying the asset portfolio and reducing the overall risk profile.
Development of the Wissey field has recently commenced and the project is being operated by Tullow Oil UK Limited (62.5%), a highly experienced and successful operator in the Southern North Sea area. The field is situated in UK Block 53/4D, approximately 10 kilometers east of the Tullow operated Horne and Wren platform from where the Wissey gas will be transported to the Thames host facility for separation and compression and from there on to the Bacton terminal.
First gas is expected in the second half of 2008 at an initial rate of 60 mmscf (11.25 million standard cubic feet per day (mmscfd) net to Faroe which corresponds to 1,800 barrels of oil equivalent (boe)). The net reserves attributable to Faroe Petroleum in respect of Wissey are estimated to be 5.9 billion cubic feet of gas (approximately 1 million boe), with the potential for further upside. Faroe estimates that its share of the Wissey development costs will be £13.5 million, which includes a cost carry for First Oil of £4.5m, all of which will be financed through a combination of existing cash and debt.
This SNS asset complements Faroe Petroleum's existing SNS Orca and Minke assets, acquired from ConocoPhillips in 2006, where initial production has recently commenced from the Minke Main field. Attractive non-operated, near-term production opportunities, such as Wissey, are being targeted to create a small portfolio of producing interests which will generate tax efficient cash flow to underpin running costs and introduce gearing through bank debt.
The completion of the transaction is subject to the finalization of the assignment under the Wissey joint operating agreement including the decommissioning security arrangements.
Graham Stewart, Chief Executive of Faroe Petroleum, commented:
"This transaction is our third Southern North Sea acquisition in 15 months, and secures Faroe Petroleum another attractive non-operated development asset with near term cash flow. This leveraged acquisition is designed to further strengthen the Company as we pursue our high impact exploration strategy in the Atlantic Margin, North Sea and Norway to maximize returns for shareholders."
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