LONDON (Alliance News) - Faroe Petroleum PLC Friday said production experienced a material year-on-year rise in 2015 and exceeded the company's full-year guidance, but warned production this year will fall considerably whilst costs are expected to rise as Faroe revamps some of its existing fields.
The oil and gas company said production in 2015 was above expectations, averaging 10,530 barrels of oil equivalent per day, even considering the company increased its guidance range back in November to 9,500 to 10,500 barrels a day after its main fields performed above expectations.
That is also a material lift from production levels in 2014, which averaged 9,106 barrels of oil equivalent a day, which in turn had risen from only 6,059 barrels a day in 2013. All of Faroe's production comes from the UK North Sea or the Norwegian North Sea.
However, Faroe warned that production will be lower in 2016, dropping to a range of 7,000 to 9,000 barrels of oil equivalent per day, despite production in January averaging 10,000 barrels a day.
The fall in production will be caused by the Njord and Hyme fields, in which Faroe holds a 7.5% stake. Those fields will continue to produce until May, but will then be suspended for the rest of the year whilst the company and its partners progress the Njord Future project, which entails redeveloping the two fields.
The redevelopment of Njord and Hyme, alongside the development of the Snilehorn field, is expected to lead to production restarting in 2019. Faroe said a final investment decision for the project should be in place before the end of the year.
"Except for the Njord and Hyme fields, where costs associated with the well suspension and tow-in projects will be incurred, no major capital investments are expected in 2016 in Faroe's principal producing fields, which are all expected to continue to produce at stable rates during the year," said the company.
The reduction in production comes at a time when low oil prices are placing companies under pressure. As a result of lower production, Faroe is expecting its operating costs per barrel to rise in 2016 - straining margins even further.
Faroe's operating cost per barrel was around USD23 in 2015 and will rise to around USD27 in 2016 - not far from current oil prices, with Brent trading only a smidgen above USD34 a barrel Friday morning.
However, Faroe has a strong balance sheet to fall back on should it need to, ending 2015 with USD91.0 million in cash and with a net cash position of USD68.0 million. It has plenty of headroom too, as it has only drawn down USD33.0 million of its USD225.0 million reserve-based lending facility.
Capital expenditure on exploration and appraisal totalled USD61.0 million before tax in 2015, which only amounted to USD15.0 million after tax, whilst expenditure on development and production totalled USD13.0 million.
Faroe plans to spend USD50.0 million in pretax exploration and appraisal expenditure in 2016, roughly USD12.0 million after tax, and a USD20.0 million budget for development and production expenditure.
The company has hedged some of its production. It has 65% of its gas production in 2016 hedged at between 45.0 to 50.0 pence per therm. Around 42% of Faroe's total production in 2015 was gas and this will rise to around 45% in 2016, but overall gas production will still fall for the full year.
"Looking ahead at 2016, we are well prepared to face the challenges of a continuing period of low commodity prices, while seeking to capitalise on our strong financial position to pursue consolidation opportunities in our core areas on the UK and Norwegian continental shelves," said Chief Executive Graham Stewart.
Faroe shares were trading up 3.2% to 55.75 pence per share on Friday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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