AIM-quoted oil explorer Faroe Petroleum (FPM:AIM) falls 5.7% to 125p as it cuts guidance for 2013 output from its oil and gas fields from 6,000-8,000 barrels of oil equivalent per day (boepd) to 5,500-6,500 boepd.

The news, which accompanies an otherwise solid set of interim results, is certainly disappointing but it is probably worth remembering that Faroe is not a production-led story. The £281 million cap, whose assets are concentrated in the UK and Norway, is focused on exploration and has a potentially exciting roster of wells lined up over the coming months.

This encompasses drilling in October to appraise 2011's Butch discovery in the Norwegian North Sea (Faroe, 15%) and an operated well, also offshore Norway, in November on the 100 million barrel Novus prospect (30%). The results from this campaign are likely to have a significant bearing on the future trajectory of the share price.

The company's drilling record of late has not been too stellar and it needs to rediscover the form it showed in 2011 when broker Cantor Fitzgerald estimates it enjoyed a success rate of 66%.

The reason for the production downgrade is extended maintenance on the Njord production facility in the Norwegian Sea but despite the shortfall the group is still generating plenty of cash and has a healthy balance sheet. Net cash of £66.5 million, combined with a £55.2 million Norwegian tax rebate, ensures the current work programme is fully funded from its existing resources.

Cantor analyst Sam Wahab, reiterates his 'buy' rating on the stock but cuts his target price from 286p to 220p. He says: 'Overall, we feel that whilst these are a solid set of results, the market will continue to focus on the production downgrades rather than the longer term upside potential of the active exploration programme.'

Issue Date: 26 Sep 2013