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Operational Update and 2018 Guidance

 

Faroe Petroleum, the independent oil and gas company focussing principally on exploration, appraisal and production opportunities in Norway and the UK, is pleased to provide an update on operations and guidance for 2018.

Highlights

Graham Stewart, Chief Executive of Faroe Petroleum commented:

“2017 has been another very good year for Faroe with strong operational performance enhanced by a general recovery in commodity prices and market sentiment. A highly successful appraisal well on our Brasse oil and gas discovery in Norway and its conversion to 2P reserves, combined with positive reserves revisions in Ula and Tambar led to Faroe’s highest ever recorded year-end 2P reserves at 97.7 mmboe, an increase of 20% even after adjusting for the reduced interest in Fenja announced yesterday. The Tambar production project commenced last year and the two infill wells have now been drilled and early results are very positive showing good potential for increased production with the new wells expected on stream during February.

“We announced yesterday that we have agreed a part-disposal of 17.5% of Fenja to Suncor, reducing our working interest from 25% to 7.5%. As well as generating an immediate cash consideration of $54.5 million, this will decrease our future capex on Fenja from an estimated £232 million to approximately £70 million. As a result, and with our existing cash position and unused debt, we are now fully funded for the operated Brasse project, which remains uncommitted at this stage, as well as our committed and ongoing Norwegian development projects.

“As we embark on another very busy year for the business, Faroe is again well positioned to capture the growth opportunities which we continue to generate from our balanced portfolio of development and exploration and appraisal opportunities, backed by our sustainable and increasingly cash generative production base.”

2017 operational update detail:

Production – significantly enhanced by the field development programme to deliver long term profitable production growth

Reserves and Resources – 20% increase in reserves in 2017 to record level of 97.7 mmboe
Faroe has completed its internal assessment of reserves and resources at 1 January 2018, which are as follows and include an adjustment for the disposal of a 17.5% interest in the Fenja Field:

Table 2 of this announcement, as attached, presents Faroe’s net 2P Reserves per field, split into liquids (oil and NGL) and gas reserves.

Development – portfolio of high quality developments progressing well

The Brasse Area

The Ula Hub Area

The Njord Hub Area

Illustrative Development Project Metrics

Field WI

(%)

Prod

start

Production 1)

Net boepd

Reserves

Net mmboe

Capex 2)

Net (£m)

Opex

($/boe)

Oda 15.0 2019 ~4,500 7.2 ~74 10 – 15
Njord and Hyme 7.5 2020 ~6,500 13.1 ~97 10 – 15
Bauge 7.5 2020 ~2,000 5.4 ~28 6 – 10
Fenja 3) 7.5 2021 ~2,500 7.0 ~70 10 – 15
Brasse 4) 50.0 2021 ~15,000 30.7 ~240

10 – 20

1) Target Plateau Rate
2) From PDO date converted from NOK assuming a NOK/GBP rate of 11.0
3) The reduction in the participating interest of Fenja to 7.5% remains subject to approval by Norwegian Authorities
4) Brasse is less mature than the committed projects. Capex and opex levels depend on development concept and commercial terms for tie-back 

 

Exploration & Appraisal – High impact and near field exploration and appraisal programme continuing

Financial – Faroe ended 2017 in a robust and differentiated financial position with significant cash reserves, enhanced production cashflow and an undrawn seven year RBL facility of $250 million

 

Site Visit

On 20 February and 21 February 2018, Faroe will be hosting a sell-side analyst visit to its offices in Stavanger. The site visit will include presentations by Faroe management and operational team on the producing field performance, the development projects and the exploration drilling programme.

For further information please contact:

Faroe Petroleum plc
Graham Stewart, CEO
Tel: +44 (0) 1224 650 920

Stifel Nicolaus Europe Limited
Callum Stewart / Nicholas Rhodes / Ashton Clanfield
Tel: +44 (0) 20 7710 7600

BMO Capital Markets
Neil Haycock / Tom Rider / Jeremy Low
Tel: +44 (0) 207 236 1010

FTI Consulting
Edward Westropp / Emerson Clarke
Tel: +44 (0) 20 3727 1000

 

John Wood, UK Asset Manager of the Company with over 15 years’ experience of the oil and gas industry and who holds an M.Sc in Petroleum Engineering from Imperial College, has read and approved the production and development disclosure in this regulatory announcement.

Andrew Roberts, Group Exploration Manager of Faroe Petroleum and a Geophysicist (BSc. Joint Honours in Physics and Chemistry from Manchester University), who has been involved in the energy industry for more than 25 years, has read and approved the exploration and appraisal disclosure in this regulatory announcement.

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company’s obligations under Article 17 of those Regulations.

 

Table 1

                                                                     Production data
    Preliminary 2017 Net Economic Production1  
Field Working Interest boepd Notes
Ula 20.0% 1,610
Tambar 45.0% 1,740
Oselvar 55.0% 1,210 The field is expected to shut down in April 2018. The pipeline between Oselvar and Ula will be cut to allow Oda to connect to the Ula facility, for which the Oselvar owners are being compensated
Trym 50.0% 4,540 Production guidance for 2018 assumes that Trym will recommence production in full at the beginning of April 2018
Brage 14.3% 1,240
Ringhorne Øst 7.8% 590
Total Norway   10,930  
Schooner & Ketch 60.% 2,220 The fields are expected to permanently cease production in Q3 2018
Blane 44.5% 880 1Includes 210 boepd of production attributable to the acquired 14% of the Blane field interest, where Faroe received the economic benefit of production from 1 January 2017 but can only account for it from the completion of the acquisition on 31 October 2017
Other UK 270
Group   14,300 1Accounting production, was 14,100 boepd

 

Table 2

  Proven plus Probable (2P) Reserves at 1 January 2018 1
Field Working Interest Liquids (mmstb) Gas (bcf) Total (mmboe)
Ula 20.0% 9.7 0.0 9.7
Oda 15.0% 6.8 2.5 7.2
Tambar 45.0% 9.8 15.7 12.4
Trym 50.0% 0.6 11.9 2.6
Brage 14.3% 2.5 3.3 3.1
Ringhorne Øst 7.8% 2.3 0.0 2.3
Brasse 50.0% 25.0 34.1 30.7
Njord 7.5% 6.2 37.6 12.5
Hyme 7.5% 0.5 0.4 0.6
Bauge 7.5% 4.6 4.9 5.4
Fenja 2 7.5% 5.6 8.3 7.0
Other 0.2 0.3 0.3
Total Norway   73.9 119.1 93.7
UK (incl. Blane) 3.4 3.4 4.0
Group   77.3 122.5 97.7

1 As adjusted for the disposal of a 17.5% participating interest in Fenja
2The reduction in the participating interest of Fenja to 7.5% remains subject to approval by Norwegian Authorities

 

Reserves Assessment

This table presents the 2P Reserves net to Faroe per field and split into oil and liquids reserves and gas reserves. To assess the reserves, the Company has used the definitions and guidelines set out in the 2007 Petroleum Resources Management System prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers (SPE) and reviewed and jointly sponsored by the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE).

 

Glossary

“2C Resources” Best estimate of Contingent Resources
“bcf” billions of standard cubic feet
“boe” barrel of oil equivalent
“boepd” barrels of oil equivalent per day
“capex” capital expenditure
“Contingent Resources” Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources are a class of discovered recoverable resources
“E&A” exploration and appraisal
“FSO” Floating storage and offloading vessel
“mmboe” millions of barrels of oil equivalent
“mmstb” millions of barrels of stock tank oil
“net” the portion that are attributed to the equity interests of Faroe
“Opex” operating expenditure
“Proved + Probable Reserves” or “2P” those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. It is equally likely that actual remaining quantities recovered will be greater than or less than the sum of the estimated Proved plus Probable Reserves (2P). In this context, when probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the 2P estimate
“PDO” The Plan for Development and Operation
“reserves” reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must further satisfy four criteria: they must be discovered, recoverable, commercial, and remaining (as of the evaluation date) based on the development project(s) applied. Reserves are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by development and production status
“WAG” water alternating gas

 

Notes to Editors

The Company has, through successive licence applications and acquisitions, built a substantial and diversified portfolio of exploration, appraisal, development and production assets in Norway, the UK and Ireland.

Faroe Petroleum is an experienced licence operator having operated several exploration wells successfully in Norway and the UK and is also the production operator of the Schooner and Ketch gas fields in the UK Southern Gas Basin and the Trym and Oselvar fields in the Norwegian North Sea.  Faroe also has extensive experience working with major and independent oil companies both in Norway and in the UK.

The Company’s substantial licence portfolio provides a considerable spread of risk and reward.  Faroe has an active E&A drilling programme and has interests in a portfolio of producing oil and gas fields in the UK and Norway, including the Schooner and Ketch gas fields and the Blane oil field in the UK, and interests in the Brage, Ringhorne East, Ula, Tambar, Oselvar and Trym fields in Norway.  In December 2016 the Company completed the acquisition of a package of Norwegian producing assets from DONG Energy including interests in the Ula, Tambar, Oselvar and Trym fields. Full year average production for 2018, is estimated to be between 12-15,000 boepd.

In November 2013 and March 2014 Faroe announced the Snilehorn and Pil (Fenja) discoveries in the Norwegian Sea in close proximity to the Njord and Hyme fields.  In July 2016 the Company announced the Brasse discovery, next to the Brage field, and the Njord North Flank discovery, next to the Njord field, both in Norway.  In February 2018, the Company announced the sale of part of its interest in the Fenja field.

Norway operates a tax efficient system which incentivises exploration, through reimbursement of 78% of costs in the subsequent year.  Faroe has built an extensive portfolio of high potential exploration licences in Norway which, together with its established UK North Sea positions provides the majority of prospects targeted by the Company’s sustainable exploration drilling programme.

Faroe Petroleum is quoted on the AIM Market of London Stock Exchange.  The Company is funded from cash reserves and cash flow, and has access to a $250million reserve base lending facility, with a further US$100million available on an uncommitted “accordion” basis.  Faroe has a highly experienced technical team who are leaders in the areas of seismic and geological interpretation, reservoir engineering and field development, focused on creating exceptional value for its shareholders.