Shares in exploration focused oil and gas outfit Faroe Petroleum (FPM) have failed to be lifted by higher oil prices, down 18.2% over the last 12 months until today. However, news of a $54.5m sale of a stake in its Fenja development in Norway is now reviving the stock, up 8% to 98.5p.
Among the reasons for the subdued share price performance were question marks over the company’s ability to fund future discoveries and develop the barrels it has already uncovered.
The Fenja transaction, with Suncor Energy taking a 17.5% interest in the asset and leaving Faroe with 7.5%, helps address those concerns.
It means focus can be diverted to the Faroe’s Brasse discovery which was successfully appraised in 2017. BMO Capital Markets analyst David Round notes the capital expenditure linked to Fenja has been reduced to £70m from £230m.
Round comments: ‘A desire to keep Brasse on schedule will have featured heavily when assessing offers for Fenja so the fact the consideration exceeded our valuation by more than 35% appears a very positive result for Faroe.
‘We see this as a good price that right sizes Faroe's exposure to the Fenja development and allows it to instead allocate capital to the impressive Brasse discovery.’
Faroe, which is active in both Norwegian and UK waters, has always pursued an exploration-led strategy.
This Shares interview with chief executive Graham Stewart may have been published four years but is still relevant to how the company’s model is supposed to work.
