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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Faroe Petrol. | LSE:FPM | London | Ordinary Share | GB0033032904 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 160.40 | 160.00 | 160.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMFPM
RNS Number : 2607K
Faroe Petroleum PLC
20 September 2016
20 September 2016
FAROE PETROLEUM PLC
("Faroe Petroleum", "Faroe", the "Company" or the "Group")
Unaudited Interim Results for the six months ended 30 June 2016
Faroe Petroleum, the independent oil and gas company focusing principally on exploration, appraisal and production opportunities in Norway and the UK, announces its unaudited Interim Results for the six months ended 30 June 2016.
Highlights
Operations - significant Brasse discovery and acquisition of package of producing assets from DONG boost production, cash flow, reserves and resources
-- Exploration programme delivers considerable increase in resources
o Faroe-operated Brasse oil and gas discovery (Faroe 50%) estimated at 43-80 mmboe in good reservoir located near Brage and Oseberg production facilities
o Kvalross exploration well (Faroe 40%) in Norwegian Barents Sea, announced as dry in February 2016
o Further new exploration licence awards - six APA licences awarded in Norway in January 2016 and one licence option, located close to the producing Corrib field, awarded offshore Ireland in July 2016
-- Average first half production of 9,030 boepd from existing portfolio (H1 2015: 10,971 boepd) - decrease mainly due to planned suspension of Njord and Hyme in early June 2016
-- Average operating cost per boe approximately $25 (2015: $23) - increase primarily due to lower production resulting from Njord and Hyme suspension and higher tariff charges on Schooner and Ketch
-- Acquisition of four producing fields in Norway from DONG adding 19.8 mmboe of reserves for consideration of $70.2 million(effective date 1 January 2016, expected to complete in H2 2016)
Finance - balance sheet strengthened following GBP66 million placing and open offer in July and August 2016
-- Revenue GBP23.1 million (H1 2015: GBP51.1 million) and EBITDAX GBP16.8 million (H1 2015: GBP39.8 million)
-- Realised hedging gains of GBP4.1 million net after premium (H1 2015: GBP4.2 million) - mainly on gas sales
-- Operating loss GBP34.3 million (H1 2015: GBP5.6 million profit) and loss after tax GBP13.0 million (H1 2015: GBP6.7 million) - reflecting lower revenue and higher expensed exploration costs
-- Exploration and appraisal capex GBP14.8 million (H1 2015: GBP25.2 million), excluding Kvalross which was expensed in the period, equivalent to net GBP3.7 million (H1 2015: GBP6.3 million) on a post-tax basis, taking account of 78% Norway exploration tax rebate
-- Cash and net cash at 30 June 2016 GBP83.9 million and GBP60.9 million respectively (31 December 2015: GBP91.5 million and GBP68.5 million), excluding the subsequent placing and open offer
-- Reserve based lending facility in place, of which GBP23 million is drawn (31 December 2015: GBP23 million)
-- Raised GBP66.0 million, before expenses, in share placing and open offer in July and August 2016, to fund acquisition from DONG and to accelerate Brasse discovery towards development
Outlook - upwards revision of production guidance and continuing focus on growth
-- Production guidance for full year 2016, including the impact of fields acquired from DONG, revised upwards to 16,000-18,000 boepd, previously 15,000-17,000 boepd, reflecting better than expected performance from the Trym, Brage and Oselvar fields, split approximately 60% liquids and 40% gas
-- 90% of H2 2016 gas production (post-tax) hedged at average price of 41p/therm and 66% of 2017 gas production (post-tax) hedged at average price of 39p/therm
-- Exploration and appraisal programme continues with Njord North Flank exploration well (Faroe 7.5%) ongoing and Dazzler/Boné exploration well in Norwegian Barents scheduled for late 2016 or early 2017
-- Net capital expenditure for 2016 on exploration, development and production forecast at approximately GBP65 million pre-tax (2015: GBP85 million), equivalent to GBP25 million on post-tax basis (2015: GBP38 million post-tax)
-- Development plans for Oda (formerly known as Butch) progressing well with FDP scheduled for late 2016 and first oil expected in 2019, whilst the FDP for the Njord Future Project, including the Snilehorn development, is scheduled for early 2017. Both projects are expected to benefit materially from industry-wide cost reductions
-- Progressing towards development concept selection on Pil - expected at end of 2016
-- With a strengthened balance sheet and much enhanced production portfolio, Faroe is well positioned to progress its exploration-led, production-backed growth strategy to create significant shareholder value
Graham Stewart, Chief Executive of Faroe Petroleum, commented:
"I am pleased to announce Faroe's results for the first half of 2016, a period of strategic delivery for the business with: another significant discovery in Norway at the Faroe-operated Brasse exploration well; production performing above guidance; and post period end, the transformational acquisition of a portfolio of Norwegian production assets from DONG was announced in July 2016.
"Pre-acquisition net production was above guidance averaging at approximately 9,000 boepd with opex per boe of $25, from which we continue to generate cash, despite the challenging market conditions. Faroe has had considerable success with the drill bit in recent years, and we are now seeing the real value of that success materialise. We have made good progress in advancing the high quality Oda development project (Faroe 15%) with first oil scheduled in 2019. Field Development Plan sanction of the Njord Future Project is expected in early 2017, and in addition, concept selection for development of the Pil field (Faroe 25%) is expected by the end of the year. We are very pleased to be progressing these important new projects all of which are taking advantage of falling costs.
"The transformational acquisition of a package of producing assets from DONG, negotiated on a bilateral basis, creates a new strategic hub for Faroe, centred round the Ula field platforms, in one of our core areas offshore Norway. The fields, benefitting from the synergies of owning several field interests in and around Ula, will have a material impact on production, reserves, cash flow and debt capacity. In parallel with the acquisition, we raised gross GBP66.0 million of equity in July and August 2016 to fund the acquisition and accelerate the progress of Brasse towards development.
"As we proceed towards the year end we remain busy with the drill bit with results due shortly from the near-field Njord North Flank exploration well (Faroe 7.5%); we also look forward to spudding the high impact Barents Sea well Dazzler/Boné (Faroe 20%), and plan the early integration of the new DONG assets and asset team into our business. I look forward to updating you on our progress in due course."
Ends
For further information please contact:
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Faroe Petroleum plc
Graham Stewart/Jonathan Tel: +44 1224 650
Cooper 920
Stifel Nicolaus Europe Limited
Callum Stewart/Ashton Clanfield Tel: +44 20 7710
7600
RBC Capital Markets
Matthew Coakes/Daniel Conti/Roland Tel: +44 20 7653
Symonds 4000
FTI Consulting
Edward Westropp/Tom Hufton Tel: +44 20 3727
1000
CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
We are pleased to announce the 2016 Half Year Financial Results. The period finished on a high note with the significant Brasse discovery in Norway. Faroe is operator and holds a 50% interest in this discovery, estimated to hold gross 43-80 mmboe in good reservoirs. Close to existing infrastructure, Brasse has the potential to become a cornerstone asset in our portfolio. In July 2016 we announced the acquisition from DONG of a package of four producing oil and gas fields in Norway for a consideration of $70.2 million, which is set to more than double our current production. Simultaneously we announced a substantially oversubscribed share placing to raise GBP66 million, before expenses. These three key achievements have propelled the Company forward to its next phase of growth and put us on track to become a leading independent North Sea E&P company.
The start of the year saw a further decline in oil prices, with WTI and Brent falling below $30 per barrel for the first time since 2003. Since this low-point the oil price has been on a fairly steady upward trend, reaching approximately $50 per barrel at the close of the half year. The market now appears to be at a point where supply and demand are approaching balance, following a period of substantial global oversupply, and expectations are that an upward trend in oil prices is likely to emerge albeit at a slow rate due to the accumulated stock overhang. The market is expected to remain challenging for some time, and for E&P companies with access to capital, this is an opportune time to progress projects benefiting from substantial cost reductions and to grow through acquisition.
Consistent strategy is delivering results
Faroe's strategy is to grow value from reserves and resources through monetising exploration and appraisal successes, selectively participating in development projects and pursuing value accretive asset transactions. This strategy and business model, underpinned by cash flow from good quality low-cost production, a strong balance sheet and rigorous financial discipline, has delivered exceptional results for Faroe, creating a strong platform for continued growth benefiting from significant sector-wide cost reduction. The Group will also continue to pursue its successful exploration strategy, funded from cash flow and Norwegian fiscal incentives.
Brasse exploration success
Two exploration wells were drilled in the first half of 2016, resulting in one significant success. The first well, which commenced in January 2016, was on the Norwegian Barents Sea Kvalross prospect (Faroe 40%). Whilst the well was unsuccessful we were pleased that it was drilled significantly below budget. In May 2016 drilling commenced on the Faroe-operated Brasse well (Faroe 50%) in the Norwegian North Sea immediately south of the producing Wintershall-operated Brage oil field (Faroe 14.25%) and east of the producing Statoil-operated Oseberg field. After encountering good oil and gas bearing reservoirs in the main wellbore a side-track well was drilled and in July 2016 we announced that the recoverable hydrocarbons were estimated to be in the range of 43-80 mmboe. With a 50% interest in Brasse, net recoverable resources are in the range 22-40 mmboe, making Brasse one of our most significant discoveries to date. The Brasse discovery, in one of our core areas, with its significant resources and close proximity to existing infrastructure builds on Faroe's existing position in the Norwegian North Sea and work has begun to assess options for taking this important new asset forward towards development.
Pre-development projects progressing
Faroe's successful exploration programme has delivered a number of commercial discoveries which are now progressing towards development. Development projects in this low commodity price environment benefit significantly from reduced costs, helping to make project economics robust at low commodity prices. There is real potential for Faroe to benefit from material near- and medium-term organic growth in production and cash flow from its existing portfolio, through a combination of selective monetisation and participation in development projects.
In early June 2016, production was suspended on the Njord and Hyme fields (Faroe 7.5%) as planned, and the Njord production facility has now been towed to shore for upgrade work. The operation, which is on time and on budget, is designed to strengthen the facility and modify the topsides in order to extend its operating life and accommodate the Snilehorn tie-back development; production start-up is scheduled for 2020. Remaining gross recoverable Reserves on the Njord, Hyme and Snilehorn fields exceed an estimated 200 mmboe.
On the shallow water Centrica-operated Oda oil field development project (Faroe 15%), formerly known as Butch, FDP submission is expected by the end of the year with first oil scheduled for 2019. Oda has estimated reserves of 42 mmboe in excellent reservoir, and will be developed as a subsea tie-back to Ula (Faroe 20%). Gross plateau production from Oda is expected to be 35,000 boepd (5,250 boepd net to Faroe).
The significant Pil area (Faroe 25%) is also being matured towards development, with concept selection scheduled before the end of the year. Estimated reserves on the Pil, Bue and Boomerang discoveries range from 80-200 mmboe gross. Both Njord and Draugen have been identified as potential export hosts, and a standalone development with a leased FPSO is also a candidate.
Production portfolio performing well
The Company's tax efficient production portfolio remains core to our strategy and is a principal source of funding for the Group's drilling programme. Faroe delivered net average production of 9,030 boepd in the first half of 2016 with an average opex per boe of $25. Faroe's production is spread across a balanced and high quality portfolio of assets with an approximately even split between Norway and the UK prior to the DONG asset acquisition; following the DONG asset acquisition, the geographic split is closer to 75%/25% Norway/UK. With an operating netback of $14 per boe, the production portfolio generated substantial cash flow for the Group. The suspension of production on Njord and Hyme in early June 2016 reduces full-year production and earnings, as Njord and Hyme contributed approximately 1,850 boepd net to Faroe during the first half of 2016.
Successful DONG acquisition and share issue
In July 2016 Faroe announced the acquisition from DONG of four producing assets, all in the Norwegian North Sea, for a consideration of $70.2 million. In parallel, the Company raised GBP66 million of new equity capital (before expenses) in a significantly oversubscribed share placing and open offer. The acquired assets, two of which are operated, add 2P developed reserves of 19.8 mmboe together with 2C resources of 11.1 mmboe, and are expected to approximately double Faroe's average economic production in 2016. The deal, which comes with tax balances of $109 million, has an effective date of 1 January 2016 and is expected to complete in H2 2016.
The acquisition creates a new strategic hub for Faroe, centred around the Ula platform, in one of our core areas offshore Norway. As well as the strategic nature of the deal, the acquired assets will have a material and complementary impact on production, reserves, resources, cash flow and debt capacity. Having assessed a large number of potential acquisition opportunities in recent times, this portfolio of assets stands out as an excellent strategic fit, with substantial upside, and delivering material multi-faceted synergies
The share placing and open offer ensure that Faroe continues to take advantage of the growth potential within our portfolio in a capital efficient manner, taking advantage of upside opportunities and progressing our pre-development projects towards monetisation while maintaining balance sheet strength and flexibility.
Outlook
Our consistent focus on exploration has delivered high-quality discoveries over several years, most recently on the Brasse discovery. As a result of these successes, maturing and monetising discoveries will form an increasing part of our value-focused growth model. Furthermore, despite persistent low commodity prices, the vastly reduced cost structure in the industry today offers real scope to lock in low costs and attractive returns. The timing is therefore right for the Company to participate in the upcoming pre-sanction projects, namely the Njord Future Project, the Oda development and the Pil concept selection. In addition, the important Brasse discovery this summer is set to become a major asset in the coming period and underlines the material size, diversity and economic attractiveness of our projects which together have the real potential to transform the value of the Company in the coming years.
Following the acquisition of producing assets from DONG, Faroe will focus on their integration into our portfolio, in order to optimise their value and contribution to our growth. This acquisition brings with it an additional small operating asset team in our Stavanger office, strengthening further Faroe's capability as we grow the Company. Faroe's enhanced in-house experience and capability coupled with strong partnerships will ensure that we realise the substantial upside of our production portfolio.
Market conditions remain challenging for the sector but there are signs of a return to balance between supply and demand, seen in the oil price recovery following the lows of January this year. The combination of Faroe's strong balance sheet, latent debt capacity, healthy and profitable production base, continuing exploration programme focus and outstanding portfolio of pre-development projects means that we are well positioned to grow materially in the near future in order to deliver our goal of becoming a leading independent North Sea E&P company.
John Bentley Graham Stewart
Chairman Chief Executive
REVIEW OF ACTIVITIES
While continuing to make good progress in the ongoing exploration projects, the pre-sanction development projects and the projects to improve production from the existing fields, the Brasse discovery stands out as the major highlight in H1 2016, in addition to the acquisition of four additional Norwegian producing assets from DONG, announced in July 2016.
Exploration
Faroe participated in two exploration wells in the Barents Sea and Norwegian North Sea and added to the licence portfolio through awards in the Norwegian APA licensing round and Irish Atlantic Margin Licensing Round. The drilling programme is continuing with the Njord North Flank exploration well currently being drilled.
Drilling operations
At the beginning of the year Faroe participated in the drilling of the Wintershall-operated Kvalross well, located in the Barents Sea in Licence PL611 (Faroe 40%). The well targeted the two independent prospects, Kvalross and Kvaltann, within a Mid-Late Triassic Snadd formation channel. Whilst good quality sands were encountered in the Kvaltann prospect they were found to be water wet and in the main Kvalross target, hydrocarbon shows were observed, but not in good quality reservoirs. Whilst a disappointing result the well was delivered below budget.
In early July 2016, Faroe announced an oil and gas discovery in the Brasse exploration well, 13 kilometres to the south of the Brage field in the Norwegian North Sea. Faroe, as operator, commenced drilling well 31/7-1 (Faroe 50%) at the end of May using the Transocean Arctic semi-submersible drilling rig. The main wellbore encountered approximately 18 metres of gross gas-bearing and approximately 21 metres of gross oil-bearing good quality Jurassic reservoir and based on these initial results, the joint venture undertook to drill a side-track appraisal well (31/7-1A) to test the south-eastern part of the structure. The side-track encountered a 25 metre gross oil column and a 6 metre gross gas column, also in good quality reservoir. Total gross volumes of recoverable hydrocarbons have been estimated by the Company to be 28-54 mmbbls of oil and 89-158 bcf of gas (43-80 mmboe in aggregate).
The Brasse discovery is located within tie-back distance to existing infrastructure: 13 kilometres to the south of the Brage field platform, in which the Company holds a 14.3% working interest, 13 kilometres to the east of the Oseberg Sør field platform, and 13 kilometres to the south east of the Oseberg field platform. Faroe and its co-venturer (Point Resources AS (50%)) have started the planning of a possible appraisal programme and have started assessing development options for this discovery, in one of Faroe's core areas in the Norwegian North Sea.
In August 2016, drilling commenced on the Njord North Flank-2 exploration well 6407/7-9 S (Faroe 7.5%) located in Licence PL107C immediately north of the Njord field (Faroe 7.5%). The well is targeting Middle and Lower Jurassic sandstone reservoirs of the Ile and Tilje formations in a fault-bounded structural closure, with a target depth in the Lower Jurassic Åre Formation. Drilling operations are ongoing.
Faroe's rolling exploration programme is set to continue with a high impact frontier exploration well on the Barents Sea Dazzler prospect (Faroe 20%) at the end of the year or the beginning of 2017.
Licence rounds
In January 2016, Faroe was awarded six new prospective exploration licences including two operatorships under the 2015 Norwegian APA (Awards in Pre-defined Areas) Licence Round on the Norwegian Continental Shelf. Three of the licences are located in the Norwegian Sea and three in the Norwegian North Sea including the Rungne Prospect in the Brage area and the Katie Prospect close to the Ula Field.
In July 2016, Faroe was awarded a licence in Ireland in the second tranche of awards in the 2015 Atlantic Margin Licensing Round. The Licensing Option 16/23 (Faroe 100% and operator), which involves a low cost work programme, covers some 960 square kilometres in the Slyne/Erris Basin, approximately 15 kilometres east of the producing Corrib gas field (operated by Shell), which came on-stream at the end of 2015.
Production
During the first half of 2016, Faroe achieved net average production of 9,030 boepd (H1 2015: 10,971 boepd) a decrease mainly due to the suspension of the Njord and Hyme fields in early June, to allow the Njord Future Project to proceed. In H1 2016, approximately 41% of total production came from UK fields and approximately 37% of total production was gas.
Faroe's diversified production is spread across a well balanced portfolio of oil and gas assets in the UK and Norway. The principal fields in the UK are Schooner, Ketch and Blane. Production from Schooner and Ketch has been slightly below expectations in the beginning of the year mainly caused by liquids handling issues within the export system at the Theddlethorpe terminal. This situation is being corrected and flows are returning to normal rates. A key well in Schooner, SA-11, was reinstated to good production in May following a successful wireline intervention.
In Norway, the main producing fields are Brage and Ringhorne East. Brage is continuing to deliver stable and reliable base production from 19 wells and with a high uptime. The field produced above expectations in H1 2016. The two most recent infill wells, A-18C and A-7B are delivering significant contribution to total field production. The Brage drilling rig is currently warm stacked. Several good quality new infill drilling targets have been identified and plans are now underway to recommence production drilling early in 2017.
Average operating expenditure per barrel of oil equivalent (opex/boe) in the period was $25 compared to $22 for the whole of 2015 which reflects the lower production rates notably following the suspension of the Njord and Hyme fields.
In July 2016, Faroe announced that it had added interests in four significant new producing fields acquired from DONG: Ula (20%), Tambar (45% in Tambar and 37.8% of Tambar East), Oselvar (55%), and Trym (50%). Faroe will become the operator of Oselvar and Trym, which are developed with subsea installations tied to the Ula field and to the Harald field in Denmark respectively. The four new fields have performed above expectations in 2016 delivering approximately 10,500 boepd net to the acquired interests in the period January to August.
Pre-sanction development projects
Njord Future Project
Following the planned shut-in of the Njord and Hyme fields in June 2016, the Njord A and B facilities were successfully towed to shore, on time and on budget, to strengthen the facility and modify the topsides in order to extend the life and accommodate the Snilehorn tie-back. Snilehorn (Faroe 7.5%) will be developed as a two-well subsea tie-back to Njord and it is planned that first oil from Snilehorn will coincide with production recommencing on Njord and Hyme in 2020. The Njord Future Project is progressing to plan with finalisation of the FEED project, final investment decision (FID) and field development plan (FDP) submission expected in Q1 2017.
Oda (Butch) Project
Concept selection for the Oda (Butch Main) discovery (Faroe 15%) was made in 2015 being a subsea tie-back to the Ula field in which Faroe will have a 20% interest acquired from DONG. The produced gas from Oda will be injected into the Ula Field reservoir to improve oil recovery. A compensation payment is expected to be paid by the Oda partners to the Oselvar field (Faroe 55%) which will cease production when Oda comes on stream. The plan is to submit the field development plan for Oda in late 2016.
Pil Project
Following its discovery in 2014, the Pil area now includes the Pil, Bue and Boomerang discoveries (Faroe 25%). The Pil partnership is maturing these significant discoveries towards development, focusing on either subsea development options or a stand-alone development solution, based on an FPSO. The partnership is making good progress towards the next major milestone, which is the concept selection decision expected in late 2016.
South-East Tor
In November 2015 the Company increased its equity interest in this Norwegian North Sea discovery, by acquiring a 75% interest from Lundin, taking Faroe's stake to 85% with operatorship. There are several different development scenarios under review including a simple tie-back solution to Ekofisk, either directly or in connection with the nearby Tor Field, where a redevelopment project is currently being planned.
Portfolio management
The Company is applying stricter investment criteria across its pre-development assets to reflect the lower commodity price environment and in 2016 has withdrawn from the UK Tornado licence (Faroe 7.5%) and is in the process of relinquishing the Solberg and Rodriguez licences (Faroe 20%) in Norway; in both these cases, the decisions to withdraw are a result of a combination of increasing licensing fees or other commitments together with a low probability of progressing these assets to become economically viable developments.
The Company has written down to zero the carrying value of its interest in the Perth licence (Faroe 39.95%, increased from 34.62% following Atlantic Petroleum's withdrawal) having done the same for its interest in the Lowlander licence (Faroe 100%) in 2015. Faroe's managements view is that the current market conditions, there is a low likelihood of commercialising these interests in the near to medium term.
FINANCE REVIEW
The first half of 2016 saw a significant reduction in cash flow from operations, as a result of lower production and a reduction in realised prices to $38.5 per boe in H1 2016 from $51.5 per boe in H1 2015. Faroe's active exploration programme in Norway, which benefits from the 78% exploration tax rebate, has continued with two wells drilled in H1 2016, of which the Faroe-operated Brasse well was announced as a significant discovery. Drilling operations are currently ongoing on the Njord North Flank well with results expected soon. Following this well, the Dazzler/Bone is expected to spud in late 2016 or early 2017.
Revenue adjusted for under-lift of GBP20.2 million and including realised hedging gains of GBP4.1 million, totalled GBP47.4 million, averaging $38.7 per boe (H1 2015: $51.5 per boe). This fall is predominantly explained by the fall in oil prices during H1 2016. Operating costs, excluding depreciation, depletion and amortisation (DDA) increased slightly to $24.9 per boe compared to $22.5 per boe in 2015, caused by a combination lower volumes, following the Njord and Hyme shut in, and higher tariff charges on Schooner and Ketch. DDA per boe fell to $11.1 compared to $15.1 per boe in 2015, reflecting impairment charges in 2015.
Since the half year the Company raised GBP66.0 million gross in equity in a share placing in July and an open offer to existing shareholders in August 2016. The fund raise coincided with the acquisition of a package of Norwegian production assets from DONG, expected to complete in H2 2016, for a consideration of $70.2 million, adding 19.8 mmboe of 2P reserves and doubling our 2016 production. The fund raise and acquisition have created a solid platform for further growth for the Company.
Income statement
Revenue in the period was GBP23.1 million (H1 2015: GBP51.1 million). Revenue adjusted for under-lifts and over-lifts was GBP43.3 million (H1 2015: GBP63.7 million). The decrease in revenue reflects a reduction in production, mainly due to Njord and Hyme being suspended in June 2016 for upgrades and strengthening. Hedging gains of GBP4.1 million net of premium were realised in H1 2016 (H1 2015: GBP4.2 million) and are included in other income. Hedging gains in H1 2016 were predominantly from gas sales where Faroe hedged a significant portion of production at a weighted average 44 pence per therm in the period.
Cost of sales for the period was GBP24.2 million (H1 2015: GBP36.0 million). Cost of sales excluding over-lifts and under-lifts (see paragraph above) was GBP44.4 million (H1 2015: GBP48.5 million) reflecting a reduction in production. DDA for the period was GBP13.7 million (H1 2015: GBP20.4 million). With lower revenue and higher opex per boe, EBITDAX in H1 2016 was lower at GBP16.8 million compared to GBP39.8 million in H1 2015.
Pre-tax expensed exploration costs for the half year were GBP25.9 million (H1 2015: GBP9.0 million) and include write-offs of the Kvalross (GBP14.5 million) and Perth (GBP6.4 million) costs and a number of licences where active exploration activity has ceased. Expensed exploration costs also include GBP1.7 million (H1 2015: GBP3.3 million) of pre-award expenditure, which comprises costs associated with licence round applications. Expensed administration costs in H1 2016 were GBP4.2 million (H1 2015: GBP2.7 million). The increase in administrative expenses was due to the time-writing charge out rate for 2015 being adjusted in March 2016 with retrospective effect.
The Group made a loss before tax of GBP35.9 million (H1 2015: GBP0.4 million profit) which mainly reflects the operating loss as outlined above. The non-cash tax credit for the period was GBP22.9 million (H1 2015 tax charge: GBP7.1 million) largely reflecting lower profits from production in Norway and higher exploration write-offs. The post-tax loss was GBP13.0 million (H1 2015: GBP6.7 million).
Taxation
Faroe is an active and successful explorer in Norway with a substantial licence portfolio and relatively high average working interests. Thanks to Norway's progressive fiscal incentive for exploration, Faroe is able to pursue a multi-well exploration programme in Norway for a fraction of the cost of a similar programme outside Norway. The Company benefits directly from a 78% exploration tax rebate, meaning that for every GBP1 spent the Norwegian Government will return 78p of eligible expenditure in the form of a rebate at the end of the following year, to the extent it is not offset by current year profits from producing assets. The Group had a tax receivable at 30 June 2016 of GBP64.5 million (31 December 2015: GBP35.2 million) consisting of 78% of exploration expenditure, net of production profits in Norway. The Company will receive the 2015 tax rebate in December 2016.
At 30 June 2016 the Group had unrelieved UK tax losses of approximately GBP51.1 million (31 December 2015: GBP55.6 million). The unrelieved tax losses are available indefinitely for offset against future taxable profits in the UK. The carried forward losses are expected to be utilised in coming years, depending upon commodity prices, and were first recognised as a deferred tax asset in 2014 at the prevailing rate at the time of 62%, being corporation tax of 30% and supplementary corporation tax ('SCT') of 32%. In 2015 the SCT was reduced to 20% and in March 2016 it was announced that the SCT would decrease to 10% from 1 January 2016 which was substantively enacted on 6 September, and will result in a decrease in the deferred tax asset of approximately GBP8.0 million.
Balance sheet and cash flow
Expenditure of GBP17.3 million (H1 2015: GBP32.8 million) on intangible and tangible assets, excluding Kvalross which was expensed in the period, prior to tax rebate, was made in the period, of which GBP14.8 million (post tax GBP3.7 million) related to exploration expenditure, primarily on Brasse. GBP2.5 million related to development expenditure, principally reflecting pre-sanction cost on the Oda (formerly Butch) field.
The net assets of Faroe Petroleum increased during the period to GBP195.0 million (31 December 2015: GBP192.4 million).
Closing gross cash was GBP83.9 million (31 December 2015: GBP91.5 million) and net cash reduced to GBP60.9 million (31 December 2015: GBP68.5 million) in the period prior to the subsequent placing and open offer.
Hedging
The Group operates a policy to hedge a proportion of its production, principally in order to safeguard revenues and budgets. Hedged volumes, on a post-tax basis, currently amount to approximately 90% of total estimated gas production in 2H 2016 and 66% in 2017 (production from acquired DONG assets are included from 1 January 2017). The hedging instruments selected are primarily put options and swaps at a weighted average of 41 pence per therm in H2 2016 and 39 pence per therm in 2017. Current hedging contracts for 2H 2016 and 2017 are exclusively gas.
Open hedge contracts are marked to market at the end of each period with unrealised gains or losses taken to the Income Statement as other income/expense as a non-cash item. Unrealised hedging losses for H1 2016 were GBP7.2 million (H1 2015: GBP2 million). Realised hedging gains in the period, net of premium, were GBP4.1 million (H1 2015: GBP4.2 million), and are mainly from gas sales.
Dividend
The Directors do not recommend payment of a dividend.
Unaudited Unaudited Audited
Six months Six months Year to
Group Income Statement to to 31 December
30 June 30 June 2015
2016 2015
---------------------------- ----------- ----------- ------------
GBP'000 GBP'000 GBP'000
Revenue 23,083 51,149* 112,980
Cost of sales (24,173) (35,984) (99,838)
Asset impairment - - (45,108)
Gross (loss) / profit (1,090) 15,165 (31,966)
Other (expense) / income (3,079) 2,196* 13,867
Exploration and evaluation
expenses (25,936) (9,043) (89,537)
Administrative expenses (4,205) (2,733) (3,718)
Operating (loss) / profit (34,310) 5,595 (111,354)
Finance revenue 296 472 909
Finance costs (1,932) (5,692) (11,855)
(Loss) / profit on ordinary
activities before tax (35,946) 365 (122,300)
Tax credit / (charge) 22,903 (7,050) 69,382
Loss for the period (13,043) (6,685) (52,918)
Loss per share - basic
(pence) (4.85) (2.49) (19.7)
Loss per share - diluted
(pence) (4.85) (2.49) (19.7)
* Realised hedging gains/(losses) are now included
in Other (expense) / income as per note vii which
is consistent with the 2015 Annual Report.
Unaudited Unaudited Audited
Six months Six months Year to
Statement of Other Comprehensive to to 31 December
Income 30 June 30 June 2015
2016 2015
----------------------------------- ----------- ----------- ------------
GBP'000 GBP'000 GBP'000
Loss for the period (13,043) (6,685) (52,918)
Items that may be reclassified
subsequently to profit
or loss:
Exchange differences
on retranslation foreign
operations net of tax 14,542 (6,043) (1,503)
Actuarial gains on defined
benefit pension - - -
plans net of tax
Total comprehensive profit
/ (loss) for the period 1,499 (12,128) (54,421)
Unaudited Unaudited Audited
30 June 30 June 31 December 2015
Group Balance Sheet 2016 2015
-------------------------------------- ------------ --------- --------------------
GBP'000 GBP'000 GBP'000
Non-current assets
Intangible assets 88,990 140,117 73,521
Property, plant and equipment:
development & production 107,310 123,967 110,594
Property, plant and equipment: other 374 662 503
Financial assets - 9 12
Deferred tax asset 39,306 22,249 32,398
235,980 287,004 217,028
Current assets
Inventories 6,618 5,206 5,922
Trade and other receivables 45,738 35,027 27,964
Current tax receivable 64,534 53,969 35,195
Financial assets 3,129 3,708 10,621
Cash and cash equivalents 83,895 104,679 91,515
203,914 202,589 171,217
Total assets 439,894 489,593 388,245
Current liabilities
Trade and other payables (38,601) (33,902) (32,418)
Current Taxation - - (689)
Financial liabilities (81,840) (74,994) (55,776)
(120,441) (108,896) (88,883)
Non-current liabilities
Deferred tax liabilities (29,814) (65,255) (19,888)
Provisions (94,634) (80,755) (87,118)
Defined benefit pension plan deficit - (975) -
(124,448) (146,985) (107,006)
Total liabilities (244,889) (255,881) (195,889)
Net assets 195,005 233,712 192,356
Equity attributable to equity holders
Equity share capital 26,903 26,807 26,824
Share premium account 262,478 262,388 262,453
Cumulative translation reserve 9,290 (8,595) (4,055)
Retained earnings (103,666) (46,888) (92,866)
Total equity 195,005 233,712 192,356
Unaudited Unaudited Audited
Six months to Six months to Year to 31 December 2015
Condensed Group Cash Flow Statement 30 June 2016 30 June 2015
----------------------------------------------------------- -------------- -------------- -------------------------
GBP'000 GBP'000 GBP'000
(Loss) / profit before tax (35,946) 365 (122,300)
Depreciation, depletion and amortisation 13,661 20,648 38,447
Exploration asset write off 10,117 5,707 83,569
Unrealised hedging losses / (gains) 7,211 1,986 (4,580)
Asset impairment - - 45,108
Fair value of share based payments 1,900 1,635 1,916
Movement in trade and other receivables (10,282) 2,618 2,768
Movement in inventories (696) (864) (1,580)
Movement in trade and other payables 6,183 (412) (1,896)
Currency translation adjustments (3,003) 686 1,587
Expense recognised in respect of equity settled share based
transaction - (55) (67)
Interest receivable (296) (472) (909)
Interest and financing fees payable 4,935 5,006 10,268
Tax (payment)/rebate (873) - 40,284
Net cash (used) / generated in operating activities (7,089) 36,848 92,615
Investing activities
Purchases of intangible and tangible assets (17,269) (32,758) (84,585)
Proceeds from sale of intangible assets - 1,300 1,300
Interest received 296 472 909
Net cash used in investing activities (16,973) (30,986) (82,376)
Financing activities
Proceeds from issue of equity instruments 104 - 138
Net proceeds / (repayments) from borrowings 19,635 9,310 (9,908)
Interest and financing fees paid (2,170) (2,562) (5,322)
Net cash inflow / (outflow) provided from financing
activities 17,569 6,748 (15,092)
Net (decrease) / increase in cash and cash equivalents (6,493) 12,610 (4,853)
Cash and cash equivalents at the beginning of period/year 91,515 92,571 92,571
Effect of foreign exchange rate changes (1,127) (502) 3,797
Cash and cash equivalents at end of period/year 83,895 104,679 91,515
Share Cumulative
Group Statement of Changes in Equity for the period ended 30 Share premium translation Retained
June 2016 capital account reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
As at 1 January 2016 26,824 262,453 (4,055) (92,866) 192,356
Loss for the year - - - (13,043) (13,043)
Other comprehensive income:
Loss on retranslation of foreign subsidiaries - - 14,542 - 14,542
Total comprehensive income/(loss) - - 14,542 (13,043) 1,499
Transfer to retained earnings* - - (1,197) 1,197 -
Issue of ordinary shares under EBT 79 25 - - 104
Share based payments - - - 1,046 1,046
As at 30 June 2016 26,903 262,478 9,290 (103,666) 195,005
*An adjustment has been made to align the financial statements to the underlying accounting
records following the intercompany loan balance between the Company and Føroya Kolvetni
P/F being repaid as a capital contribution. Since the loan was classified as quasi-equity,
historic revaluation balances were transferred to Retained Earnings.
Group Statement of Changes in Equity for the period ended 30 Share Cumulative
June 2015 Share premium translation Retained
capital account reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
As at 1 January 2015 26,751 262,388 (2,552) (41,126) 245,461
Loss for the year - - - (6,685) (6,685)
Other comprehensive income:
Loss on retranslation of foreign subsidiaries - - (6,043) - (6,043)
Total comprehensive income/(loss) - - (6,043) (6,685) (12,728)
Issue of ordinary shares under EBT 55 - - - 55
Share based payments - - - 923 923
As at 30 June 2015 26,807 262,388 (8,595) (46,888) 233,712
Share Cumulative
Group Statement of Changes in Equity for the period ended 31 Share premium translation Retained
December 2015 capital account reserve earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
As at 1 January 2015 26,751 262,388 (2,552) (41,126) 245,461
Loss for the year - - - (52,918) (52,918)
Other comprehensive income:
Loss on retranslation of foreign subsidiaries - - (1,503) - (1,503)
Total comprehensive loss - - (1,503) (52,918) (54,421)
Issue of ordinary shares under EBT 73 65 - - 138
Share based payments - - - 1,245 1,245
Buy back of share options - - - (67) (67)
As at 31 December 2015 26,824 262,453 (4,055) (92,866) 192,356
Notes
(i) Basis of preparation
As required in AIM Rule 18, the interim financial information for the six months ended 30 June 2016 is presented and prepared in a form consistent with those that which will be adopted in the annual statutory financial statement for the year ended 31 December 2016 and having regard to the International Financial Reporting Standards ("IFRS") applicable to such annual accounts.
The financial information contained in this announcement for the year ended 31 December 2015 does not constitute statutory financial statements within the meaning of Section 435 of the Companies Act 2006.
An unqualified audit opinion was expressed on the statutory accounts for the year ended 31 December 2015, as delivered to the Registrar. This unqualified audit opinion did not contain a statement under s498(2) or s498(3) of the Companies Act 2006.
(ii) Earnings per share
The calculation of earnings per share is based upon the weighted average number of ordinary shares in issue during the period of 268,954,509 (30 June 2015: 268,021,740 and 31 December 2015: 268,049,436).
(iii) Dividend
The Directors do not recommend payment of a dividend.
(iv) Foreign currencies
The assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the balance sheet date. The resulting exchange differences are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.
(v) Taxation
Unaudited Unaudited Audited
Six months to Six months to Year to 31 December 2015
Tax on profit on ordinary activities 30 June 2016 30 June 2015
----------------------------------------------------------- -------------- -------------- -------------------------
GBP'000 GBP'000 GBP'000
Current tax
Overseas tax credit 23,882 11,439 35,272
UK Tax charge - - (392)
Amounts underprovided / (overprovided) in previous period/
year 188 - (187)
Total current tax credit 24,070 11,439 34,693
Deferred tax
Origination of temporary differences 491 (13,386) 34,594
Change of tax rate - (4,996) -
Prior period/year adjustment (168) - 175
Total deferred tax charge (323) (18,382) 34,769
Foreign exchange differences
Differences arising from the use of period end
and average exchange rates (844) (107) (80)
Total foreign exchange differences (844) (107) (80)
Total tax credit / (charge) in the Income
Statement* 22,903 (7,050) 69,382
* Non-cash tax credit / (charge)
(vi) Cost of sales
Unaudited Unaudited Audited
six months six months Year to
Analysis of cost of sales to to 30 June 31 December
30 June 2015 2015
2016
GBP000 GBP000 GBP000
Operating costs* 18,301 18,568 38,866
Commercial tariffs* 10,961 7,519 15,932
Depreciation, depletion and amortisation 13,661 20,415 38,019
(Underlift)/overlift in the year (20,234) (12,530) 4,620
Other cost of sales* 1,484 2,012 2,401
Total cost of sales 24,173 35,984 99,838
* included in the opex per boe metric
(vii) Other (expense) / income
Unaudited Unaudited Audited
six months six months Year to
Analysis of other income to to 30 June 31 December
30 June 2015 2015
2016
GBP000 GBP000 GBP000
Realised hedging gains* 4,132 4,182 9,287
Unrealised hedging (losses) / gains (7,211) (1,986) 4,580
Total other income (3,079) 2,196 13,867
* included in the revenue per boe metric
and EBITDAX
(viii) Post balance sheet events
On 7 July 2016, the Company was awarded a new licensing option 16/23 in the Irish Atlantic Margin. The license covers some 960 square kilometres in the Slyne/Erris Basin, and is one of the second tranche of awards made under the 2015 Atlantic Margin Licensing Round. Faroe is the operator of this license (Faroe 100% working interest).
On 11 July 2016, the Company announced the completion of a successful side-track appraisal well on the Brasse discovery in License PL740 in the Norwegian North Sea (Faroe 50% and operator). The Brasse side-track reached a total depth of 2,530 metres (MD) and encountered a 25 metre gross oil column and a 6 metre gas column. Total gross volumes of recoverable hydrocarbons are estimated to be 28-54mmbls of oil and 89-158bcf of gas.
On 14 July 2016, the Company announced the conditional agreement to acquire of package of interests in producing Norwegian oil and gas assets from DONG . A total consideration of $70.2 million has been agreed with the vendor and subject to certain conditions it is expected that the completion of the acquisition will occur by the end of 2016.
Furthermore, the Company announced its intention to conduct a placing with certain institutional investors and the directors of the Company to raise approximately GBP60.8 million before expenses.
On 21 July 2016, the Company announced an Open Offer to existing shareholders to purchase additional shares following the successful placing. The Open Offer was underwritten and raised GBP4.2 million before expenses.
As announced on 14 July 2016, Faroe has conditionally acquired interests in a package of Norwegian producing assets from DONG including a 20% interest in the Ula field and associated production hub infrastructure. One of the conditions of the acquisition was a 30 day pre-emption period under which the partner in the Ula field could have acquired the interest. This period has now expired and the Company will now proceed towards the completion of the acquisition as planned.
On 16 August 2016, the Company announced the commencement of the Njord North Flank-2 exploration well 6407/7-9 S (Faroe 7.5% working interest). The well is located in License PL107C immediately north of the Njord field (Faroe 7.5% working interest).
The reduction in the SCT rate from 20% to 10% which was announced during the 2016 budget was substantively enacted on 6 September 2016. This will result in an approximate GBP8 million reduction of the deferred tax asset.
Glossary
bcf billions of standard cubic
feet
------------------------ --------------------------------
boe barrels of oil equivalent
------------------------ --------------------------------
boepd barrels of oil equivalent
per day
------------------------ --------------------------------
Contingent Resources or those quantities of petroleum
2C 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
------------------------ --------------------------------
DDA depletion, depreciation
and amortisation
------------------------ --------------------------------
DONG DONG E&P Norge AS
------------------------ --------------------------------
EBITDAX Earnings before interest,
taxation, depreciation,
amortisation and exploration
expenditure (gross profit
plus depreciation on producing
assets)
------------------------ --------------------------------
economic production production to which the
Company has an economic
entitlement. It includes
production between the
effective (economic) date
and the completion date
of an acquisition. Accounting
production excludes all
pre-completion production.
------------------------ --------------------------------
MD measured depth
------------------------ --------------------------------
mmbls million barrels of oil
------------------------ --------------------------------
mmboe million barrels of oil
equivalent
------------------------ --------------------------------
netback revenue less operating
cost per boe
------------------------ --------------------------------
net cash cash and cash equivalents
less financial liabilities
excluding the balance
of the Exploration Financing
Facility which is directly
linked to the Norway tax
rebate (disclosed as tax
receivable in the balance
sheet).
------------------------ --------------------------------
"Proved plus Probable those additional Reserves
Reserves" which analysis of geoscience
or "2P" 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 per cent.
probability that the actual
quantities recovered will
equal or exceed the 2P
estimate
------------------------ --------------------------------
TD total depth
------------------------ --------------------------------
John Wood, is the UK Asset Manager of Faroe Petroleum and an engineer (M.Sc in Petroleum Engineering, Imperial College, London), who has been involved in the energy industry for more than 16 years, has read and approved the technical 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.
Estimates of reserves and 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LFFLFASIALIR
(END) Dow Jones Newswires
September 20, 2016 02:01 ET (06:01 GMT)
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