TIDMFPM
RNS Number : 1208X
Faroe Petroleum PLC
08 August 2018
8 August 2018
Faroe Petroleum plc
("Faroe", "Faroe Petroleum", the "Company")
Mid-year Operational Update
Faroe Petroleum, the independent oil and gas company focusing
principally on exploration, appraisal and production opportunities
in Norway and the UK, is pleased to provide an operational update
ahead of its half yearly results which will be released on 18
September 2018.
Highlights
- Iris Hades success adds 42 mmboe(1) 2C resources net to Faroe
- 2019 appraisal well committed
- Production averaged 12,402 boepd for H1, with current
production at approximately 15,200 boepd(2)
- Full year guidance range narrowed to 12,000 - 14,000 boepd
- Fully-funded, multi field development programme on schedule,
with Oda development drilling underway
- High quality E&A drilling programme continues with six wells committed - Rungne next
- Net cash position of GBP84 million (unaudited) at 30 June
2018, up from GBP75 million at 31 December 2017
- Unaudited EBITDAX in H1 2018 of c. GBP76 million
Graham Stewart, Chief Executive of Faroe Petroleum
commented:
"We have continued to deliver shareholder value in the first six
months of the year, as we benefit from investment in our high
quality asset base. The very significant Iris Hades discovery in
April alone adds an estimated 42 million barrels of 2C oil
equivalent net to the Company, substantially increasing our
resource base. We remain one of the most active and successful
explorers in the sector with six further committed wells over the
coming months with the Faroe-operated Rungne exploration well due
to spud in September.
"The period to date has seen us deliver significant progress
from an operational perspective and our exploration and appraisal
programme continues to deliver material success. Faroe's production
portfolio has seen a very active period of technical and investment
driven activity. Although this reduced first half average
production it will lead to increased productivity in the second
half as well as the years ahead, as we invest heavily in our
existing fields as well as several new fields. Our field
development and infill programme has progressed apace and on
schedule, capturing the material cost savings available as a result
of the fall in oil prices.
"We continue to actively manage our portfolio in order to
optimise shareholder returns. One notable transaction in the period
was the sale of a 17.5% stake in the Fenja field development,
generating over GBP40 million and freeing up capital for investment
in the pending Brasse development at our full 50% equity
position.
"Our focus on maintaining balance sheet health has combined well
with improved oil prices to deliver a stronger net cash position as
well as markedly improved liquidity. With a fully funded programme
ahead, investing across our business, and at the bottom of the
cycle, I remain confident in our ability to deliver our stated
production growth target of 35,000 boepd by 2021/22, designed to
generate material increase in cash-flow and shareholder value."
2018 operational update detail:
Exploration and appraisal - 44% increase in 2C Contingent
Resources and multiple wells ahead
-- The results from the Iris Hades exploration well (Faroe 20%)
have been evaluated and have led to a substantial increase in the
contingent resources estimates for this new discovery. Faroe
estimates gross contingent resources for Iris Hades(1) at 63 mmboe
(1C), 210 mmboe (2C) and 322 mmboe (3C). The Iris Hades resources
estimates include condensate, which based on preliminary fluid
analysis makes up c. 25% of the contingent resource. After
adjusting for the divestment of 13.3% of Fogelberg to Dyas(3) , the
Company's total 2C resources has increased by approximately 44% to
113 mmboe. The Iris Hades partnership has contracted the Deep Sea
Bergen drilling rig to drill an appraisal well on the structure to
target the substantial upside to the south of the discovery well.
The appraisal well is expected to spud in H1 2019
-- Well planning is progressing according to plan on the Faroe
operated Rungne exploration well (Faroe 40%) which is expected to
spud in September 2018 using the Transocean Arctic semi-submersible
rig. The unrisked gross resources targeted are c. 70 mmboe
-- The Faroe operated Brasse East well (50%) will be drilled
back-to-back following the Rungne well, again using the Transocean
Arctic. Success could add further incremental reserves to the
existing 2P reserves of 30.7 mmboe (net to Faroe) for the planned
Brasse field development. The unrisked gross resources targeted are
12.5 mmboe
-- A further exploration well is expected to spud towards the
end of 2018 on the Equinor operated Pabow prospect (Faroe 20%) in
the Stord basin to the east of the Utsira High. The primary target
in the Lower Jurassic Statfjord Group has unrisked gross gas
resources potential of c. 70 mmboe
-- The Cassidy exploration well (Faroe 15%) is expected to be
drilled in Q1 2019, back-to-back with the production wells in Oda.
Cassidy sits within the PL405 Oda licence to the north of Oda and
will target a prospect with the same Jurassic Ula formation level
as the Oda field with gross unrisked potential of c. 50 mmboe
-- Yoshi is expected to be drilled in 2019. The prospect is
located in licence PL 836 S immediately to the south-west of the
Smørbukk South Field and will target the Jurassic Fangst Group
reservoirs with a gross unrisked resources potential of c. 30
mmboe
Production - within guidance with narrowed range for 2018
-- Group production averaged 12,402 boepd for the period from 1 January to 30 June 2018
-- The Tambar field was off line for much of Q1 whilst the two
new infill wells were brought on stream since when significant new
production has been added. As previously announced, there was a
temporary loss of production from the Trym field in Q1 caused by a
fault in the downstream export system, and production was
re-established in early March. Production in H1 was also impacted
by planned temporary shut downs of the Ula hub and the Brage field
during Q2 for maintenance
-- With all the main fields back on line, production is
currently approximately 15,200 boepd(2) As previously announced,
the Schooner and Ketch gas fields in the UK are scheduled to cease
production at the end of August 2018
-- On that basis, and reflecting all known movements in the
production assets, the full year guidance range has been narrowed
to 12,000-14,000 boepd
-- The average operating cost per barrel of oil equivalent for
producing fields for the period was approximately $27/boe,
reflecting slightly lower production throughput. Unit operating
cost is expected to decline in H2 with higher average
production
Development and projects - multiple projects on track and
capturing lower costs
The Ula Hub Area
-- On Tambar (Faroe 45%) the two new infill production wells are
performing on expectation. Preparations are underway for the
gas-lift installation to be completed in Q4, boosting production
further
-- Oda development drilling (Faroe 15%) commenced on schedule on
15 July 2018. Three top hole sections have already been completed
and the drilling of the first of three development wells is
underway. The Oda field is on track for production start-up in
mid-2019 as planned
-- On Ula (Faroe 20%) a number of significant upgrades to the
field facilities are also underway, which will support future
infill drilling and long term production. Three new infill wells
have been committed for drilling in 2019-20 based on the promising
results of the recent time lapse 3D seismic survey. This will
include new injection wells to extend the Water Alternating Gas
pattern for the Ula field, together with infill production
targets
-- Oselvar (Faroe 55%) ceased production in April 2018 as
planned, and has now received the final compensation payment from
the Oda field joint venture partners (Faroe 15%) which, due to its
formulaic nature, has resulted in a higher payment than expected,
amounting to a total of GBP35 million net to Faroe (including the
GBP7.4 million net received in June 2017)
Brage
-- The three new Brage wells (Faroe 14.3%) are performing in
line with expectation. An additional long reach development well
into the Sognefjord reservoir has been committed and is expected to
commence drilling in H2 2018. A number of additional attractive
infill targets have been identified and are currently being
planned
Brasse
-- Brasse (Faroe 50%) is progressing to plan and the next key
project milestone will be Concept Selection including the reservoir
drainage plan and the selection of a host facility for fluid
processing and onwards transportation. Field development sanction
is scheduled for H2 2019
Greater Njord Area
-- The Njord Future Project (Faroe 7.5%) is progressing on
schedule and within budget. In 2018, key milestones on the Njord A
facility include installation of blisters to enhance stability on
all four columns, installation of column top extensions and deck
boxes. Truss work reinforcement is also ongoing. Njord B FSO
entered the dry dock in Haugesund in July and upgrade work has
commenced according to plan
-- The Fenja development (Faroe 7.5%) is progressing on schedule and within budget
Fogelberg
-- Following the successful appraisal well and associated drill
stem test announced on 29 June 2018, preparations are underway to
start development studies in H2 2018 for the Fogelberg field (Faroe
15%) subsea tie-back to the Åsgard B host
Finances and balance sheet - net cash and strong liquidity
-- Gross and net cash increased from GBP149 million and GBP76
million respectively at 31 December 2017 to GBP158 million and
GBP84 million (unaudited) at 30 June 2018. Faroe's cash balances
grew despite the ongoing investment programme, primarily focused on
its Norwegian asset base, as a result of a combination of factors
notably higher commodity prices and the sale of a 17.5% interest in
the Fenja development for cash consideration of GBP40.4 million
($54.5 million equivalent)
-- Faroe generated EBITDAX (unaudited) of approximately GBP75
million in H1 2018. This includes GBP28 million compensation
payment from Oselvar/Oda. The gain resulting from the Fenja
divestment of GBP26 million post tax is not included in the
EBITDAX
-- H1-2018 exploration and appraisal capex was GBP39 million
pre-tax (GBP9 million post tax), with full year forecasts reduced
from GBP80 million (GBP20 million post tax) to GBP70 million
pre-tax (GBP15 million post-tax) primarily reflecting the reduction
in Fogelberg equity. 2018 Capex is weighted towards the second half
of the year where H1-2018 development and production capex was
GBP59 million, with full year forecast being GBP155 million
-- Faroe has a $100 million unsecured Norwegian bond whilst the
reserve based lending credit facility of $250 million (plus $100
million accordion) remains undrawn. The NOK 1 billion revolving
Norwegian Exploration Financing Facility (which in turn is funded
by the Norwegian tax rebate system) is utilised for E&A
expenditure in Norway
For further information please contact:
Faroe Petroleum plc Tel: +44 (0) 1224 650 920
Graham Stewart, CEO
Stifel Nicolaus Europe Limited Tel: +44 (0) 20 7710 7600
Callum Stewart / Nicholas
Rhodes / Ashton Clanfield
BMO Capital Markets Tel: +44 (0) 207 236 1010
Tom Rider / Jeremy Low
FTI Consulting Tel: +44 (0) 20 3727 1000
Ben Brewerton / Emerson Clarke
Foot notes
1. Internal estimate - difference in CPR resources estimate
<10%
2. On 5 August 2018
3. The Fogelberg assignment to Dyas completed on 31 July
2018
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 Company's internal estimates of resources contained in this
announcement were prepared in accordance with the Petroleum
Resource Management System guidelines endorsed by the Society of
Petroleum Engineers, World Petroleum Congress, American Association
of Petroleum Geologists and Society of Petroleum Evaluation
Engineers.
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.
Glossary
"1C" low estimate of Contingent Resources
"2C" best estimate of Contingent Resources
"3C" high estimate of Contingent Resources
"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
"net" the portion that are attributed to the
equity interests of Faroe
"Proved + Probable Reserves" those additional Reserves which analysis
or "2P" 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
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 has extensive experience
working closely with major and independent oil companies both in
Norway and in the UK.
The Company's substantial licence portfolio provides a diverse
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 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 12-14,000
boepd.
In November 2013 and March 2014 Faroe announced the Snilehorn
(Bauge) 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, close to the Brage field, and the
Njord North Flank (Bauge) discovery, close to the Njord field, both
in Norway. In February 2018, the Company announced the sale of part
of its interest in the Fenja field and in April 2018 announced the
significant Iris and Hades discoveries.
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 has had significant success in
exploration on the Norwegian continental shelf, and the great
majority of the Company's 2P reserves have been generated directly
from Faroe's exploration success.
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 $250 million reserve base lending facility,
with a further US$100million available on an uncommitted
"accordion" basis. The Company has also raised a $100m senior
unsecured bond. 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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