article - interesting read part 12 Oct 2018 12:02
Steve Marshall
1 Oct 2018 10:58 GMT Updated 1 Oct 2018 12:34 GMT
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Norway’s DNO faces having to pay a significant premium for additional shares in Faroe Petroleum if it decides to pursue a possible takeover bid for the latter as Faroe’s share price has surged in recent months due to strong financial results and a promising portfolio.
DNO has built up a dominant 28.23% stake in the London-listed independent following a series of share acquisition deals earlier this year with Delek Group and other investors for a price of 125 pence per share, which Faroe’s board then claimed undervalued the company based on its portfolio of field assets and exploration prospects.
Affirming the board’s point, Faroe was trading at 168 pence per share on Monday - and UK research firm Edison Investment still believes the company remains undervalued.
The London-based firm stated in a fresh analysis issued “we believe that the market is not fully valuing the risked value” of an upcoming seven-well exploration and appraisal programme targeting net unrisked prospective resources of 144 million barrels of oil equivalent.
Edison analyst Sanjeev Bahl, who gives an expected valuation of about 185 pence for Faroe shares, also stated the current price does not fully take into account positive cash flow effects from tax depreciation carry-forwards and consolidation in Norway.
Furthermore, the firm highlighted the robust financial position of Faroe that is fully funded for its ongoing investment programme through a rolling Nkr1 billion ($122.8 million) debt facility to finance exploration, as well as an undrawn $250 million facility and further accordion funding of $100 million for appraisal and development work.
Faroe, which also has available cash of £158.6 million ($206.5 million), recently reported a pre-tax profit of £73 million for the first half of this year, reversing a year-earlier loss of £6.1 million, as revenue surged on higher oil and gas prices.
Faroe tightens grip on Brasse - The company had a proven and probable reserve base of 98 million boe at the end of last year, including a net 30.7 million boe from the Brasse field for which a concept selection is due by year-end, with submission of a field development plan to coincide with a final investment decision scheduled for the second half of 2019.
However, this figure could be boosted significantly by the OMV-led Iris-Hades discovery made off Norway earlier this year that currently has a net contingent resource estimate of 42 million boe for Faroe based on its 20% partner stake - making it the company’s biggest find.
Faroe chief executive Graham Stewart said the company estimates the unrisked resource range of the seven committed exploration wells at between 80 million and 150 million boe as it seeks to continue its successful exploration-led organic growth strategy.
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