Faroe & Dana

27th Nov '08 by Murakami

23 comments 7624 reads

For those of you that don't know Faroe, it's an an oil and gas explorer/producer drilling in the Atlantic Margin (Faroe Islands and UK West of Shetlands), the North Sea and Norway. It has a balanced portfolio of 49 exploration, appraisal, development and production licence interests. JV partners include joint venture partners include Bayern Gas, BP, Chevron, Conoco Phillips, RWE, Shell and the like...

There was speculation earlier in the year about a tie-up between Faroe and Dana Petroleum, which has blocks nearby? Faroe’s chief executive, Graham Stewart, used to be finance director of Dana and left to set up Faroe, so they obviously know each other well. However, this seems to have gone nowhere.

Since entering Norway in 2006, Faroe Petroleum has built a significant portfolio of 20 Norwegian licences to complement its existing Atlantic Margin and North Sea portfolios. The Company now holds the largest portfolio of Norwegian licences among all AIM listed oil companies. Accordingly, the Company’s activity level is ramping up as follows:
- Drilling of at least six Norway wells in next two years, with three planned in 2008;
- Substantial 3D seismic survey over three exploration licences in Norwegian Sea;

Seems like a very promising business - views?

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Faroe Petroleum, the independent Oil and Gas Company focusing
principally on exploration, appraisal and undeveloped field
opportunities in the Atlantic margin, the North Sea and Norway, is
pleased to announce that, in advance of potentially submitting
applications for licences, it has pre-qualified as an operator for
the Greenland 2010 Baffin Bay Licensing Round.

The undiscovered oil and gas potential offshore West Greenland, which
includes the Baffin Bay Licensing Round area, is estimated by the
U.S. Geological Survey (USGS) to contain up to 18 billion barrels of
oil equivalent.

emptyend

24th Jul '09

From the header.....

There was speculation earlier in the year about a tie-up between Faroe and Dana Petroleum, which has blocks nearby? Faroe’s chief executive, Graham Stewart, used to be finance director of Dana and left to set up Faroe, so they obviously know each other well. However, this seems to have gone nowhere

There is speculation about this on a regular basis. It is my belief that the Dana stake of 27% is effectively there as an investment and a blocking stake to limit the options for a hostile bid from a third party. I've spoken with both managements about it and I know that Graham Stewart wasn't especially comfortable when Dana built their stake (and indeed investigated to confirm that the Dana and Parkmead stakes weren't in concert).....and I'm sure that Dana view their FPM stake as offering an attractive set of options for various sorts of corporate deals (some of which may involve closer ties and others of which might involve complete disposal.

I don't think anything will happen for a while yet, though wells in prospects where both Dana and FPM have a stake may prove to be a catalyst for action. These include Tornado and Anne Marie. The other possibility, of course, is that Dana itself gets bid for (RWE and BP have been rumoured bidders - I believe the first but not the second) - in which case their stake could get freed up if the bidder didn't fancy the FPM acreage (or FPM itself could then get bid for if they did!).

I've got Faroe on my watchlist, but I really don't think there is a huge hurry just yet. OTOH, tucking some away on dips for the long term may not be a bad idea either. FPM has a very interesting set of opportunities - but it doesn't have the financial muscle to pursue them fast enough. Perhaps that may change over time?

Via Lactea

25th Jul '09

I'm not sure who to believe here. Faroe's June 2009 presentation, page 14, is titled,

"Upside Potential Un-recognised"

and sets out a summary to justify that claim, as follows,

"Summary

Unrisked resources (mmboe) 1,116

Risked resources (mmboe) 166

Risked NPV 2009 (based on conservative oil price) £536m

composed of:

– Production/dev/contingent £204m

– Exploration £332m

• Near term £189m

• Long term £143m

Market cap implies risked NPV of approx. £75m"

So Faroe is claiming that its risked NPV is around seven times as great as its market capitalisation. Is this the sale of the century or are Graham Stewart's risk factors wildly out? It's true they've had a couple of dusters but Breagh was a success and is to bring in cash approximately equal to one third of the market capitalisation. If Tornado or Glenlivet come good, they could each have a value of the same order as Breagh.

emptyend, I see you have doubts about a bid from Dana. Just as Centrica are doing to Venture, wouldn't it be good for Dana's shareholders to put in a low bid for cheap assets now? While Faroe is apparently so undervalued, and oil price recovery appears to have commenced, wouldn't this be the best time for Dana to launch a bid? If Dana are to do the deed at all, why risk drilling success or a higher oil price - either of which would push the asking price higher? And why sit on a 27% stake, which would make an excellent launch for a bid but do nothing? I think Dana last bought in March 2008, so should now be free to bid below the price of their past purchases.

I'm holding some Faroe, as a two-way bet (drilling success/takeover bid). Only hindsight will show if I was right, but to me it looks a good gamble (ooops, I mean investment!) at 70p.

26th Jul '09

I should point out that my "doubts" are not speculative guesswork. My comments are factual reflections of management opinions as expressed at the AGM in conversations heard by several shareholders. Of course that doesn't rule out a change of mind or change of circumstances - but I'm of the view that, with 27% already, there is no compelling hurry! It isn't as if anyone else is going to bid, is it?

ohisay

26th Aug '09

http://www.iii.co.uk/articles/articledisplay.jsp?section=ShareDealing&article_id=10039013

Very good piece by Edmond Jackson on Faroe posted on iii a couple of days ago for anybody who hasn't seen it.

".It has been announced that over last weekend, Faroe spudded an exploration well on the Glenlivet prospect in the West of Shetlands, with a second well, Tornado, due imminently. Analysts have estimated these two wells have scope to more than double Faroe's net asset value of 70p a share, which is in line with the current share price. "

"In a recent note, Panmure Gordon has set a 12-month price target of 200p although its being broker to the company and making a market in the shares means its comment is unlikely to be derisory. The target looks fair enough however, given the prospects involved also advances in seismic and drilling technologies. Perhaps, in the event of unsuccessful results in the short term, there could be some share price drift however the price is well down from last year's 210p high."

LeighBarton

16th Sep '09

Not alot of interest in this share judging by the thread yet I consider it one of the hidden jewels of the O&G sector and the only one I remain invested in. The news on Glenlivet is very encouraging (anything named after a whisky must be good) with more to come and yet the share trades juest above £1. Surprised more oiler investors have not taken a punt.

Yes Glenlivet is encouraging - but not as encouraging as the recent share price rise implies. And yes there is plenty of interest in FPM's drilling programme - to which many of us have an exposure via DNX, and therefore take quite a keen interest in FPM..

I might have bought the shares directly - but I'm not inclined to take money out of a CGT-protected ISA to put into an AIM stock like FPM, even though I now need only an extra 18% return to break even.......

17th Sep '09

ee that makes sense however DNX don't have the same footprint as FPM do they?

DNX don't have the same footprint as FPM do they?

If you are making the point that they don't have such a high risk profile and they also have assets elsewhere then yes. However, DNX has the largest acreage position in the Shetland-Faroe basin, having acquired 18 blocks in the 23rd round, 16 blocks in the 24th round and 16 blocks in the 25th round.....and having a 27.5% stake in FPM to boot.

DNX's position is (much) bigger than FPM's to the north of Shetland and FPM's is bigger to the west (for now ;-))

We'll see how it goes once they start drilling .....

ee it is a fair point especially with the stake that DNX have in FPM that by investing in the former you are getting a reasonable exposure to the latter and at less risk. Still I favour FPM's team and in the end that is what you are backing. In the end though as you rightly state they may well become one in any event.

I'm not sure that you fully understood my point. DNX have a substantial position in their own right, in addition to the pieces that FPM have. They may, of course, make a bid for FPM at some point - which is the scenario you refer to. Equally they may dispose of the stake to someone else......

....in other words DNX are in pole position if they choose, but they aren't bound in. Effectively they have an option over the FPM acreage, and a 27.5% stake in the meantime.

Management teams are by-the-by in this instance. Geology and control (over the upside) is what matters.

ee - I had fully understood your point, DNX are in pole position on FPM but it does not exclude a bid from another party. Any option would require a premium and depends on the success rate of the team. I was not just referring to mngt. In essence FPM has a higher risk profile simply because they do not have as much production under their belt. But they are very well funded, for what is admittedly an expensive part of the world to explore. I am not in a position to compare the respective acreage, being neither a geologist nor familiar enough with DNX however starting from a smaller base the potential upside with FPM is greater. But as you say DNX do have an option over that upside (or at least a stake where they could put FPM into play)

24th Sep '09

Interim results just out:

http://www.investegate.co.uk/Article.aspx?id=20090924070000H3271

Some interesting comments on the explo programme, including.....

Tornado is scheduled to be drilled by operator OMV in
the coming weeks. Tornado is a substantial, amplitude-supported, oil
prospect, located adjacent to the undeveloped BP-operated Suilven oil
field, and within tie-back distance of the producing Schiehallion oil
field.

Not that this is news, really....

28th Sep '09

from Oilbarrel

Thousand and nine is shaping up to be pretty good for Faroe Petroleum: in the first six months of the year, the AIM-quoted E&P pumped 1,500 barrels of oil equivalent per day generating turnover of £2.9 million, and shored up the balance sheet by the profitable sale of its stake in the Breagh gas discovery. But perhaps more important than the bottomline numbers is the that the asset that has been laid down, has the potential to deliver real growth and value going forward.
Chief among these assets is the Atlantic Margin portfolio. Here Faroe has amassed a series of frontier exploration licences that could prove company-making. The AIMcompany now holds 14 licences on Europe’s Atlantic Margin - six in the Faroes and eight in the UK – making Faroe the third largest gross licenced acreage holder after Statoil and DONG. Not many small cap E&Ps operate in these high risk waters – this is `Big Oi’ territory – and Faroe’s footprint here really sets it apart from its peers.

29th Sep '09

RNS notification of spudding Tornado released today.

http://www.stockopedia.com/news/announcement/FPM/090929fpm001826.htm

We all knew it was coming, but racy FPM responded with an 8% rise.

With this recent popularity we may get a correspondingly exaggerated fall if the well fails.

Not too concerned, though. I'm holding on for that risked NPV 2009 of £536 million !!!

3rd Nov '09

Well good news on Glenlivet and Tornado yet whilst the share price is considerably up from its lows we are still off the recent summer highs. O&G continues to baffle me especially as the oil price can no longer be considered a drag!

Stockhound

24th Nov '09

Not really sure of the significance of this - how far is prequalification off licence award? - but FYI. http://www.stockopedia.com/news/announcement/FPM/091124fpm000805.htm

In reply to StockHound (post #19)

I'd be wondering whether FPM are in danger of over-extending themselves. They have a huge amount of acreage, much of which is relatively expensive to drill (deepish water)....... I'd think it makes sense only if they are building themselves up as a "ready made explo portfolio" with the aim of getting taken out by a major.

Cuthbert C

The Greenland Bureau for Minerals & Petroleum has a useful website at www.bmp.gl

The procedures for licence application are documented at

www.bmp.gl/petroleum/Dagsordnr_13_Bilag_1_Invitationsbrev_minustraeningsforpligtelse.pdf

Criteria for acceptability/selection are set out on page 5 of the above

AFAICS from a quick reading, you don't absolutely have to be pre-qualified as an operator in order to submit an application for an exploration licence. But such applications will only be accepted from those companies which meet the criteria mentioned above.

If more than one application is received for the same licence, then the criteria will be used to decide who gets it.

By qualifying as an operator you are demonstrating that you comply fully with the criteria and are therefore

a) acceptable as a licence holder and

b) on a par with anyone else who applies for the same licence

So it is about positioning yourself to get access to licences on the same footing as anyone else.

Very helpful - many thanks

RedTedsRoadshow

12th Jan '11

Snippets from DJN...

INTERVIEW: Faroe Petroleum Exploring Cooperation With KNOC

Oil and gas explorer Faroe Petroleum PLC (FPM.LN) Wednesday said it has talked to Korea National Oil Corp. about ways for the two firms to cooperate, after South Korea's state-owned oil company acquired a near 23% interest in Faroe when it bought Dana Petroleum PLC late last year.

"We have been in discussions with KNOC and we are talking about the potential to cooperate," Faroe Chief Executive Graham Stewart told Dow Jones Newswires, although he said no deal is certain.

Stewart said KNOC is seeking to increase its production base and Faroe, which is also seeking to increase production to help fund its exploration activities in the Atlantic margin and the Norwegian North Sea, believes it can help KNOC find it.

The company has a similar arrangement with Scottish & Southern Energy PLC (SSE.LN), another shareholder in Faroe, which tapped the explorer's expertise to search for interests in producing gas fields.

Stewart said there's also a possibility KNOC might be interested in acquiring stakes in Faroe's assets, although added again no agreement is certain.

"It remains to be seen what occurs but we've had discussions," Stewart said.

Observers speculated that KNOC might wish to sell its stake in Faroe, possibly to Dana founder Tom Cross's Parkmead Group PLC (PMG.LN), but Stewart said its new shareholder is supportive.

"They are quite happy with their interest in us," Stewart said.

Faroe & Dana

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Murakami

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