News from oil and gas firm Faroe Petroleum (FPM:AIM) could support its efforts to bat off a hostile takeover approach from Norway’s DNO.

A 152p per share bid from DNO was dismissed by Faroe as ‘opportunistic’ on 26 November, arguing it ‘substantially undervalued’ the company. Support for this view from the analyst community suggested this was more than just bluster.

However, a rival bid also looked unlikely given DNO already owned nearly 30% of Faroe.

Today Faroe has announced an asset swap transaction which should reduce capital expenditure requirements and boost production and therefore cash flow in the near-term. This raises the prospect of capital returns to shareholders.

This transaction was already in the works before DNO made its move and this type of deal has been a feature of the company’s strategy in recent years under chief executive Graham Stewart. For now the share price response is tepid, up 0.8% to 158.2p.

WHAT ARE THE DETAILS?

Faroe is swapping Norwegian oil and gas assets with Equinor, subject to governmental approval. The agreement is taking in interests in the Njord/Hyme redevelopment and Bauge development in exchange for interests in four producing assets: Alve, Marulk, Ringhorne East and Vilje.

The net impact on production in 2019 is expected to be up to 8,000 barrels of oil equivalent per day (boepd) taking total production as high as 22,000 boepd.

Cantor analyst Jack Allardyce says the deal is ‘broadly neutral in terms of reserves, with 17.6mmboe (million barrels of oil equivalent) and 18.4mmboe of 2P reserves associated with the acquired and divested assets respectively.

‘It also adds interests in two new core areas (Alvheim and Norne, with the FPSO on the former around 13km from Faroe’s recent Agar discovery), with significant near-term upside including a dual-target exploration well on the Alve licence and a development well on Marulk.’ An FPSO is a vessel used to store oil.

Separately Faroe has announced the spudding of an exploration well on its Cassidy prospect, again in Norway.


Issue Date: 05 Dec 2018