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September 18, 2012 11:14 pm
Faroe Petroleum insisted it was well financed for further exploration after posting a large increase in production that offset some recent disappointment over its drilling campaign.
Graham Stewart, chief executive, said the North Sea oil explorer enjoyed improved production revenues following deals struck last year for assets on both the UK and Norwegian sectors of the continental shelf.
The jump in production – from 1,200 barrels of oil equivalent a day to 8,500 in the first half of the year – allowed Faroe to strike a deal in July to double the size of its borrowing facility to $250m in an agreement with seven banks.
However, a series of “dry” wells have been drilled during the interim period alongside those at its T-Rex and Cooper prospects in Norway that, while encountering hydrocarbons, were not commercially viable.
Mr Stewart insisted that Faroe would push ahead with its expanded exploration programme, which includes four wells over the next six months, including a prospect in the western section of the Barents Sea.
“You never expect all [the exploration wells] to come in,” said Mr Stewart. “While they [T-Rex and Cooper] did not deliver commercial success, they can still help towards developing commercial opportunities.”
Revenue rose from £40m to £91m as pre-tax losses narrowed from £24m to £15m in the six months to June 30.
Exploration spending jumped from £35m in the same period a year ago to £53m.
But £20m of tax credits resulting from the reimbursement of expenses spent in Norwegian waters – where companies can claim back 78p in the pound of exploration expenses – brought a move from post-tax interim loss of £18m to a profit of £4m.
No dividend was proposed from earnings per share of 1.57p (loss of 8.6p).
Faroe shares fell 1.3 per cent to 153½p yesterday.
Thank goodness for the taxman. The Norwegian taxman in particular. While Oslo heavily taxes production in its section of the North Sea, its generous policy towards meeting over three-quarters of explorers’ drilling costs made the difference to Faroe being in profit rather than loss for the interim period. Faroe also has £65m of UK losses that it has not yet set against future tax liabilities, leaving it well placed to continue its aggressive run of drilling in both UK and Norwegian waters. With strengthened borrowing facilities and revenues set to double from 2011’s £80m to £163m by 2013, shares trade at a modest premium to 114p of core producing plus discovered assets as calculated by broker Investec. For those seeking the thrills and spills of investing in the E&P area, Faroe offers a well-cushioned risk profile compared with some of its more financially stretched peers.
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