LONDON (Alliance News) - Faroe Petroleum PLC Tuesday said it swung to a small pretax profit in the first half of 2015 after it slashed costs across the board and partially mitigated lower oil prices by increasing production, lowering operating costs and through its hedging programme and gas portfolio.
The oil and gas company reported a GBP365,000 pretax profit in the first six months of 2015, swinging from a heavy GBP20.1 million loss a year earlier as revenue experienced a small lift to GBP55.3 million from GBP53.5 million.
The small profit was the result of the company slashing its cost of sales to GBP36.0 million from GBP44.8 million, pushing gross profit up to GBP19.3 million from only GBP8.6 million a year earlier.
Faroe also more than halved its exploration and evaluation costs to GBP9.0 million from GBP19.9 million whilst administrative expenses dropped to GBP2.7 million from GBP4.1 million. That was partially offset by finance costs increasing to GBP5.7 million from GBP5.0 million.
Faroe's production is spread across a balanced portfolio of assets with an approximately even split between Norway and UK and also between oil and gas. Of Faroe's producing assets, two UK gas fields are operated by Faroe, namely the Schooner and Ketch fields.
Like its peers, the company has been trying to improve the economics of its projects by lowering costs in light of lower oil prices. Faroe upped production to an average of 10,971 barrels of oil equivalent per day in the period from 7,592 barrels per day and cut its operating cost per barrel to USD22 from USD33.
Those operating costs fell due to the higher production volumes, improved efficiencies and because of the devaluation of the krone.
The operating netback per barrel, or the margin made on each barrel, fell to USD31 per barrel of oil from USD38 per barrel due to the fall in oil prices, but this was "materially offset" by combination of gains on oil hedges, stable gas prices and significant reduction in operating costs, it said.
Faroe benefited from hedging gains totalling GBP4.2 million in the period, compared to a GBP500,000 loss a year earlier.
Faroe has a large amount of its production hedged. Around 90% of its gas production is hedged for the second half of 2015, 70% of its gas production is hedged in 2016 and half of its gas production is hedged in 2017, all at 40.0 to 50.0 pence per therm. In terms of oil, around a third of its production is hedged in the second half and in the first quarter of 2016 at a price between USD60 to USD90 per barrel.
To put that into perspective, Brent oil was trading at just over USD48 per barrel on Tuesday morning.
The company is also confident of hitting its full year production guidance, narrowing it to between 9,000 to 10,000 barrels of oil equivalent per day from its previous guidance of 8,000 to 10,000 barrels. That guidance excludes the the recently completed acquisition of Roc GB.
Cash at the end of the period stood at GBP104.7 million, with net cash at GBP81.7 million. That compares to cash of GBP92.6 million and net cash of GBP69.6 million at the end of December 2014.
The company said it remains committed to continuing exploration work, calling it "central" to its strategy. The company drilled several exploration wells in Norway in the half, where it beneficed from the state exploration tax rebate.
"Faroe's consistent strategic focus, high quality portfolio and strong balance sheet have ensured that we are well placed to weather a long period of low commodity prices and take advantage of attractive growth opportunities," said Chief executive Graham Stewart.
Faroe shares were down 1.5% to 64.75 pence per share on Tuesday.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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