A 3.5% fall in a share price of an oil explorer that's just found the black stuff seems counter intuitive but that's the fate of Faroe Petroleum (FPM:AIM) this morning - marked down to 69p.

Chart (1)

The reason investors are underwhelmed is that the Boomerang discovery in the Norwegian North Sea is at the lower end of pre-drill expectations and, unhelpfully, it follows a dry hole on the Portrush prospect last Friday (11 Sep).

Boomerang, a follow up to the Pil and Bue discoveries, will be followed by drilling on the nearby Blink target. Preliminary estimates of recoverable volumes from Boomerang are in the 13 million barrels of oil equivalent (mmboe) to 31 mmboe range, against pre-drill estimates for Boomerang and Blink combined of 93 mmboe to 490 mmboe.

Despite this result we are fans of Faroe's model - see below.


Cantor Fitzgerald keeps the faith with a buy recommendation, though has put its 101p price target under review. 'We believe that an oil discovery at Boomerang and the information gathered with this well could affect the Pil/Bue development strategy and determine whether Pil & Bue will be developed as a tie-back or a standalone development, potentially making it a valuable asset that might be exchanged for producing assets to offset the loss of production linked to the maintenance of Njord A.

'The [BOLD] Statoil (STLO:STO)-operated facility needs a lifetime extension and we expect it to be taken to shore in 2016, and the operator expects production to be suspended until at least mid-2018.'


Issue Date: 17 Sep 2015