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Faroe Petroleum proposes £45 million share placing

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Oilfield Technology,

Faroe Petroleum plc, the independent oil and gas company focusing principally on exploration, appraisal and production opportunities in Norway, the Atlantic Margin and the North Sea, is pleased to announce the proposed placing of new ordinary shares of 10 pence each in the Company (the “Placing Shares”) in order to raise base proceeds of approximately £45 million (gross), with the option for enlargement (the “Placing”).

The Placing is being conducted through a bookbuilding process, which will be launched immediately following this announcement and will be made available to new and existing eligible institutional investors.

Panmure Gordon, Oriel and RBC have been appointed as Joint Bookrunners and Pareto has been appointed as Joint Bookrunner (Nordic) in respect of the Placing.

The net proceeds of the Placing will be used to build upon the Company’s recent operational successes and maintain momentum by:

  • Maintaining material equity positions in identified and planned high impact multi-well programme in Norway, a world class exploration region, for the next two or more years
  • Protecting Faroe’s 25% interest in the value-enhancing Pil follow-up programme
  • Progressing up to 52 mmboe of net 2C resources towards development and 2P reserves to realise upside value
  • Investing in production and reserves growth in existing fields (including Schooner and Ketch)

Graham Stewart, Chief Executive of Faroe Petroleum, commented:

”Faroe’s exploration led, production backed strategy is delivering exceptional results with seven recent exploration discoveries adding significant resources. Since 2010, production has increased four-fold and  2P reserves  have increased eight-fold, putting us firmly  on track to become a preeminent Norwegian/UK independent E&P company.

“This placing will reinforce our success by allowing us to increase exploration exposure, safeguard and grow core value and maintain our strong financial position, and will reinforce our competitive strengths when it comes to unlocking the opportunities which will fuel the next growth phase of the business.”

Background to and reasons for the Placing

Through successive licence round applications, acquisitions and asset swap transactions, the Company has built a substantial, diversified portfolio of exploration, appraisal, development and production assets across the Atlantic Margin, the UK and Norwegian North Sea, Norwegian Sea, Barents Sea and offshore Iceland, currently encompassing 74 licences covering 64 assets.

Faroe has participated in a number of high potential value exploration and appraisal wells in each of the  Company’s core areas, and in the provision of an on-going programme of high potential value exploration wells for the future. The Company’s exploration drilling programme has over recent years achieved many successes, including Fogelberg (gas, Norway) and Maria (oil, Norway) in 2010; Butch (oil, Norway) in 2011; Rodriguez (gas condensate, Norway) in 2012; Snilehorn (oil, Norway) in 2013; and Solberg (gas condensate, Norway) and Pil and sidetrack discoveries (oil and gas, Norway) in 2014 to date.

In addition to a number of undeveloped oil and gas discoveries, the Company has acquired interests in two undeveloped UK oil discoveries, Perth  (Faroe 34%) and Lowlander (Faroe 100% and operator), with a view to adding significant value through the preparation of a joint field development plan scheduled for 2015. 

As well as the Company’s exploration and appraisal licences, and pre-development assets, Faroe currently has interests in a number of non-operated oil and gas production fields in the UK and Norway, which collectively produced on average 6059 boepd (economic production net to Faroe) in 2013.  More recently, Faroe announced in April 2014 the conditional acquisition of a 60% operated interest in the Ketch Field and a 53.1% operated interest in the Schooner Field in the UK Southern North Sea gas basin (the “Interests”).

In conjunction with the Interests, average daily economic production for 2014 is anticipated to be 7000 – 10 000 boepd, net to Faroe. Net 2P reserves at an effective date of 1 January 2014 are estimated by the Company to be 33.1 million boe and, following the Pil discovery, the total net 2C resources are estimated to be 95.0 million boe.

Faroe has generated, and the Directors believe through its planned work programmes it can continue to generate, many new, exciting and potentially high value opportunities focusing on exploration, appraisal pre-development and production enhancement. The coming period will see six high quality exploration prospects reaching drill-or-drop dates. Similarly, several successful discoveries have progressed towards development sanction resolutions.  Faroe’s management therefore anticipates a number of high potential value investment decisions to be made in the near term. In the next two and a half years, it is anticipated that  Faroe will participate in approximately ten exploration and appraisal wells (targeting total net Prospective Resources of approximately 460 mmboe), advance six assets towards development or monetisation and  carry out  a number of production enhancement operations on existing assets, including at Schooner and Ketch in the UK and in the Greater Njord Area in the Norwegian Sea.

As the business matures, the Directors also feel that it would be appropriate for the Company to move to the Main Market of the London Stock Exchange.

By the end of 2017, the Company is targeting, net to the Group: Prospective Resources of approximately 2.5 billion boe; 2C resources of 200 mmboe; 2P reserves of 100 mmboe and average daily economic production of 20 000 boepd.

Use of proceeds

In addition to existing sources of finance, the Company intends to use the proceeds of the Placing for the following purposes:

Enhancing exploration & appraisal

  • Commit to and drill four additional wells in 2015-16 
  • Retain material interests in key wells

Moving 2C resources to 2P reserves

  • Progress existing discoveries of up to 52 mmboe towards commerciality and 2P reserves
  • Retain position in other discoveries and monetise them from a position of strength

Building production base

  • Deliver upside case on Schooner and Ketch fields
  • Deliver additional production from the Blane field

The Company also has the potential to apply further funds to pursue additional production acquisitions and to accelerate the conversion of 2C resources into 2P reserves. In the short term any unutilised balance will be used for general working capital purposes and to strengthen the Company’s balance sheet.

Details of the placing

The Placing will be conducted in accordance with the terms and conditions set out in the Appendix. The Placing will be effected by way of a bookbuilding process to be managed by Panmure, Oriel and RBC (the “Joint Bookrunners”) and Pareto (“Joint  Bookrunner (Nordic)” and together with the  Joint Bookrunners, the “Brokers”). The bookbuilding process will commence with immediate effect and the books are expected to close no later than 4.30 p.m. on 13 June 2014, but the Brokers reserve the right to close the books earlier, without further notice.

The timing of the closing of the book, pricing and allocations are at the absolute discretion of the Brokers. The price at which the Placing Shares are to be placed (the “Placing Price”) and the number of Placing Shares will be agreed by the Company with the Brokers at the close of the bookbuilding period. Details of the Placing Price and the number of Placing Shares will be announced as soon as practicable after the close of the bookbuilding process. The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of the Company, including the right to receive all dividends or other distributions made, paid or declared in respect of such shares after the date of issue of the Placing Shares.

Certain of the Directors have indicated an intention to participate in the Placing. In such an event, the Placing Shares subscribed for by the Executive Director(s) will be treated as “Investment Shares” as these Executive Director(s) are eligible to participate in the Company's Co-Incentive Plan and an award of matching shares will be announced separately.

The Placing is conditional upon, inter alia, admission of the Placing Shares to trading on AIM becoming effective (“Admission”) and the placing agreement between the Company and the Brokers not being terminated prior to Admission.

It is expected that Admission will become effective and that dealings in the Placing Shares will commence on 18 June 2014

Adapted from a press release by David Bizley

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