Faroe Petroleum Plc Regulatory News (FPM)

13 Mar 2007 07:01

Faroe Petroleum PLC13 March 2007 FAROE PETROLEUM PLC ("Faroe Petroleum" or the "Company") Preliminary Unaudited Results for the Year Ended 31 December 2006 Faroe Petroleum, the independent oil and gas group focusing on exploration,development and production opportunities in the Atlantic Margin, the North Seaand Norway, announces its full year results for the 12 months ended 31 December2006. Highlights Financial • Loss of £1.6m (2005 restated: £0.5m), in line with expectation • Successful institutional placing of £25.0m (£23.5m net of expenses) in April • Well financed with cash of £33.0m (2005: £22.9m) - sufficient funds to meet current commitments Strategy • Robust portfolio strategy to explore, appraise and develop the material stakes held in various oil and gas assets in the Atlantic Margin, the North Sea and Norway • Very strong strategic position in the Atlantic Margin with potential for very significant resources • Pursuing diversification to enhance risk / reward balance and drilling programme • Entry to Norway secured, with pre-qualification achieved in April, ahead of licence awards • Added interests in gas fields in the UK Southern Gas Basin for near-term cash flow • Leveraging strong relationships with oil Majors established in the Atlantic Margin to enhance and de-risk our portfolio in the North Sea and Norway • Highly experienced team in place to drive programme and growth going forward Portfolio activity • Outstanding portfolio growth with 120% increase to 33 licences as at March 2007 (2005: 15 licences) • Significant Licence Round success with six licences in Norway and five licences in UK (applied for in 2006, awarded in 2007) • Well participations o UK North Sea Halibut wildcat well - farmed out 80% of cost - traces of hydrocarbons encountered, but not in commercial quantities o Faroes Brugdan wildcat well - with much reduced cost share - traces of ydrocarbons encountered, but not in commercial quantities • Acquired first UK Southern Gas Basin appraisal and development interests • Participated in several seismic, electromagnetic and site surveys • Good technical progress being made on all licences to de-risk and mature for drilling Outlook • Drilling programme maturing for several wells over coming years • Minke Main gas field expected on stream Q2 2007 • Development decisions anticipated on Orca and Minke Graben gas field developments • Breagh gas field appraisal well scheduled for 2007 • Farm out of near-term Atlantic Margin and North Sea wells Joe Darby, Chairman of Faroe Petroleum, commented: "2006 was a significant yearfor Faroe Petroleum as we rapidly build and diversify the portfolio andstrengthen the Company. Significant achievements included: doubling the numberof licences, securing our first near-term production assets, raising finance forour portfolio programme and a timely and successful entry into Norway. We didnot strike commercial oil with our two wells, however, we have a substantialportfolio drilling programme ahead, with many exciting prospects." Enquiries: Faroe Petroleum plcGraham Stewart (Chief Executive) Tel: +44 1224 652 810 Financial DynamicsBilly Clegg Tel: +44 207 831 3113 Chairman's and Chief Executive's Review Introduction We are pleased to announce the results for Faroe Petroleum plc for the year2006. The Company had a very active year combining exploration activity andportfolio growth. Two wildcat exploration wells were drilled and although nodiscoveries were made the wells provided valuable new information, data andexperience which will enhance significantly Faroe Petroleum's potential in boththe Faroes and the Outer Moray Firth of the North Sea. Excellent progress was made in securing new assets across the spectrum ofexploration, appraisal and development, with a total of 18 new licences, elevensecured through licence round applications in 2006 (awarded 2007) and sevenacquisitions, increasing the portfolio size from 15 to 33, an increase of 120%on the year. In line with our objective of diversifying, de-risking and strengthening theportfolio, we are very pleased to have secured our entry into Norway. Norwaywas highlighted some years ago as a highly attractive oil and gas region, withits favourable tax regime, offering an excellent strategic fit for FaroePetroleum. The Company's entry was achieved by appointing the successful formerPaladin Resources Norway team in Stavanger, following the sale of PaladinResources to Talisman in late 2005. In April 2006 the Company satisfied thestringent pre-qualification process demanded by the Norwegian authorities tobecome an approved licensee in Norway. This allowed the Company to participatein the 2006 APA (Awards in Predefined Areas) Licensing Round, which offeredlicences near to existing infrastructure for exploration and appraisal. FaroePetroleum was rewarded in January 2007 with six new licences in a number ofstrong partnerships with the large oil companies ConocoPhillips, Centrica andPetro-Canada, as well as the independent Norwegian companies Noreco, Revus andPertra. Faroe Petroleum has committed one appraisal well and a number of newand reprocessed seismic surveys on these licences, and work has alreadycommenced. This licensing success puts the Company in an excellent position tobuild a new and diversified portfolio complementing existing licences in theAtlantic Margin and North Sea. In the 2006 UK 24th Licensing Round, Faroe Petroleum was awarded five newlicences through awards in 2007, further consolidating its positions. In theWest of Shetlands the Company was awarded two licences, each benefiting fromnearby discoveries and where it now holds a total of eight licences. In theMoray Firth area it was awarded three prospective licences, totalling sevenlicences in the area, one with a discovery. The Company has also commencedbuilding a position in the Southern Gas Basin, through acquisitions of interestsin four gas discoveries, with good scope for near term development.Acquisitions were undertaken during the year of interests in the Breagh, Orcaand Minke fields, acquired from Sterling Resources and ConocoPhillipsrespectively. These projects benefit from active work programmes withinacceptable investment levels for the Company, and are expected to see theCompany participate in 2007 in one appraisal well on Breagh and a single wellsub-sea tie-back development of the Minke Main Field. If successful, the Breaghgas discovery provides a low risk opportunity for a near-term gas fielddevelopment. Once the Minke Main field has been developed, with first gasexpected in Q2 2007, it is anticipated that development focus will move to thenearby Minke Graben and significantly larger Orca gas fields, which togethercomplete the package acquired from ConocoPhillips in 2006. These new near-term,lower cost exploration and appraisal opportunities provide scope for earlydevelopment via existing infrastructure, and cash flow. This enhanced portfoliooffers scope for a more active drilling programme with a good spread of risk andreward. To enhance its portfolio further, the Company created a new exclusive strategicjoint venture with a subsidiary of the US insurer, Liberty Mutual Group, inorder to acquire and exploit proven undeveloped discoveries in the UK North Sea. Liberty has a successful track record in upstream oil and gas investments inNorth America, and intends to expand its operations into the UK North Sea.This innovative investment model is designed to benefit both parties and toimprove their competitiveness in securing acquisition opportunities. The financial position of the Company was further strengthened through asuccessful fund-raising, in order to put the Company in a strong position tomeet its existing commitments and initiate further development of the business.The work obligations under the new licences are relatively modest, and theCompany is well financed going forward. Strategy Faroe Petroleum's primary objective is to create substantial shareholder valuethrough the commercial exploitation of exploration, appraisal and developmentinterests in the Atlantic Margin, the UK North Sea and Norway. Portfolioexploration and appraisal drilling continues to be the main driver for valuecreation in the Company. Faroe Petroleum also plans to continue the broadeningof its interests through acquisition of appraisal and development opportunitiesto provide a better overall risk/reward balance. Faroe Petroleum aims to retainsignificant equity participations in an active drilling programme, targetingmaterial opportunities, and it will where appropriate farm-out well costs toensure its investment exposure is within acceptable project investment levels.Faroe Petroleum is also focused upon improving balance in its portfolio asregards risk-reward and drilling timetable. This objective is making goodprogress through the introduction of new core areas with good strategic fit,namely the North Sea and Norway. The Company's portfolio therefore spans three main regions: the Atlantic Margin;the North Sea; and Norway. In broad terms, the Atlantic Margin and Norway offermateriality with many very large prospects and leads, while the North Sea offersthe attraction of smaller and lower cost opportunities in close proximity toinfrastructure with greater potential for generating near-term cash flow. Suchcash flow will in turn provide a tax efficient means of underpinning thefinancing of the exploration and appraisal programme going forward. With itshighly experienced team managing the portfolio in this way, the Company aims tomitigate risk, participate in an active and material drilling and workprogramme, access a broad group of potential farminees (oil company investors inwells) and create substantial shareholder value. Overview Atlantic Margin In their continuous search for new reserves, oil and gas companies areincreasingly attracted to the potential of the Atlantic Margin of Europe. Anestablished core area for Faroe Petroleum, this region is known for its highimpact opportunities which have led to the developments of Foinaven,Schiehallion and Clair, which collectively produce some 200,000 barrels of oilper day. The region also holds lower risk / lower reward opportunities, many ofwhich have relatively small discoveries, and several of these are attractive inthe present oil price environment. Recent activity in the area has centredaround the extensions of the Foinaven and Schiehallion oil fields (BP), thedevelopment and further appraisal of the Clair oil field (BP), thepre-development activities relating to the Laggan gas field (Total), appraisalof the Rosebank / Lochnagar oil field (Chevron) and Cambo oil field (Hess), andexploration of sub-basalt prospects including the Brugdan wildcat prospect inthe Faroes (Statoil). This momentum continues to build, and considerableindustry attention is being paid in particular to the ongoing appraisal ofChevron's Rosebank / Lochnagar discovery, which, if successful, is expected tolead to rapid development and an accompanying significant increase inexploration activity on the Corona Ridge in particular. The Company has built a strong strategic position in the Atlantic Margin, whichwould be virtually impossible to replicate today. Faroe Petroleum now holds 13licences here with significant equity positions; eight in the UK West ofShetlands and five in the Faroes. The Company holds most of its high risk /high reward licences in partnerships with such companies as BP, Chevron, Eni,Shell and Statoil. Prospects on the Corona Ridge, targeted by Chevron, showsignificant promise for substantial discoveries, and Faroe Petroleum holds fivelicences on this play. Faroe Petroleum's strategy of building a strongstrategic Atlantic Margin portfolio of quality acreage, with material stakes andin partnership with some of the most successful major oil companies in theworld, puts the Company in an excellent position to benefit from the substantialexploration investment being made in this area. The Company's Atlantic Marginportfolio is now maturing to the point where several high impact explorationwells are being prepared for drilling over the coming years. North Sea In order to provide upcoming, lower cost exploration and appraisal opportunitieswith scope for near-term development via existing infrastructure, the Companycommenced building its position in the North Sea in 2005 through the acquisitionfrom ExxonMobil and Shell of the North Halibut licence in the Outer Moray Firth. Since then, several licences in this prospective area have been won throughlicence rounds, and Faroe Petroleum is now a significant player here, with sevenlicences extending over some 2,250 square kilometres, having consolidated itsposition through the 24th UK Licensing Round. The Company's licences in thisarea hold many significant leads and prospects in shallow water near to existinginfrastructure, the latter including the Claymore, Piper and Blake oil fields.The licences are a combination of Promote and Traditional, and as they alreadybenefit from considerable well, seismic and other data, have the advantage of alow cost work programme with no firm well obligations, thereby affording goodopportunity for farm-out from a high equity position. The Company's move intothe Southern Gas Basin in 2006 followed an extensive lower risk appraisal anddevelopment project screening exercise. This yielded interests in a number ofexciting yet low risk gas appraisal and development projects in the Southern GasBasin, known as Breagh, Orca and Minke, which, if successful, will add reservesand generate tax efficient revenues, to help underpin the Company's ongoingactivity. Norway As a new strategic area of focus to complement the Company's Atlantic Margin andNorth Sea portfolios, it was decided in 2005 to build a position in Norway. Theattractiveness of Norway relates principally to its vast untapped resourcepotential, its relatively high exploration success rate and the fact that itremains very much an under-explored province. Norway ranks as the world's thirdlargest exporter of oil and gas with oil and gas production of approximately 2.8million barrels per day and 3.1 trillion cubic feet per year respectively in2006. The first exploration well was drilled in 1966 and only approximately1,100 exploration wells have been drilled (less than half the number drilled todate on the UKCS), proving 50 billion barrels of oil equivalent of recoverableresources. Norway recently implemented a favourable tax structure designed to encourageexploration. Under this scheme, exploration-focused companies such as FaroePetroleum can recover 78% of exploration related expenditure in the followingtax year. The tax rebate for expenditure in Norway in 2006 is expected to be£1,052,000 and will be paid to the Company by the end of 2007. In February 2006the Company recruited the highly respected former Paladin Resources Norway team. This team has worked together for several years on the Norwegian ContinentalShelf generating an outstanding track record and reputation spanningexploration, development and production with several oil companies in Norway,including Paladin, Enterprise, Shell and Statoil. In April 2006, the Company pre-qualified as a licensee, by meeting stringentrequirements regarding resources, competence and systems. This achievementallowed Faroe Petroleum to participate in the highly competitive 2006 APALicensing Round. The Company played a lead role in forming bidding groups withConocoPhillips, Centrica, Petro-Canada, Noreco and Pertra, and in preparingseveral of the 2006 APA applications, drawing on the considerable knowledge andexpertise of its in-house sub-surface team. These submissions were rewarded inJanuary 2007 with six licences on a variety of prospective plays in both theNorwegian North Sea and the Norwegian Sea, spanning low risk appraisal to highrisk / high reward exploration with equity interests between 20% and 30%. Thework programme commits Faroe Petroleum and its licence partners to drill onewell, acquire one new 3D survey and reprocess five existing seismic surveys. This early accomplishment in Norway puts the Company in an excellent position toprogress its objectives of diversifying and balancing the portfolio and its workprogramme. Work is underway both on these new licences and in pursuit offurther suitable opportunities. Faroe Petroleum is currently in the process ofputting in place a credit facility with a major oil and gas lending bank tofinance the portion of expenditure to be reimbursed by the Norwegian Governmentunder the new tax regime. This financing will further increase theattractiveness of exploring in Norway. Technological Edge The Company has now also made its mark as a front-runner in the specialisedfield of sub-basalt exploration, which is becoming an increasingly importantaspect of deeper water exploration, requiring the use of new and highlyspecialised technologies to identify and test prospects beneath this challengingrock type. Faroe Petroleum has, together with its joint venture partners,pioneered the application of long-offset, "over-under" seismic, electromagnetic(EM) survey techniques and most recently sub-basalt drilling. Such skills andexperience will be beneficial in exploiting the Company's Atlantic Marginportfolio. Board Appointments Mr Helge Hammer has been appointed to the board of the Company effective todayas an executive director, and this appointment will be subject to a shareholderresolution at the forthcoming Annual General Meeting. Mr Hammer is the ManagingDirector of the Company's subsidiary Faroe Petroleum Norge AS, based inStavanger. He joined Faroe Petroleum from Paladin Resources Norway where he wasDeputy Managing Director, after a very successful international career withShell. Results In April the Company undertook an institutional equity-placing of 18,382,353 newordinary shares at 136 pence per share to raise £25.0 million (£23.5 million netof expenses). The Group had cash reserves of £33.0 million at 31 December 2006(2005: £22.9 million) in addition to £2.1m, held in escrow, classified asdebtors in respect of development activities on the Minke Main gas field. TheCompany has adequate funds to meet all firm work programme commitments. Thesefunds are expected to give Faroe Petroleum sufficient capital to invest in itsfirst phase of drilling over the coming years. The Group made a small loss of £1.6 million in the period (2005 restated: £0.5million) reflecting increased activity and unrealised foreign exchange losses of£0.8 million (2005: £nil). Capital expenditure during the year was £9.5 million(2005: £2.7 million). The Company has a tax receivable at the end of the yearof £1.1 million (2005: £nil) being 78% of exploration expenditure in Norway in2006 which will be paid to the Company within the year. The net assets of FaroePetroleum increased during the period to £57.7 million (2005: £33.6 million).The Group has adequate funds to meet all its current obligations. The Boardof Directors does not recommend the payment of a dividend. Joe Darby Graham D StewartChairman Chief Executive Review of activities Overview Faroe Petroleum has built a substantial acreage position of scale in three keyareas, the Atlantic Margin, the North Sea and Norway, now holding a total of 33licences, covering some 13,550 square kilometres. The work programmesundertaken during 2006 included the drilling of two exploration wells, theacquisition of one new Faroe Petroleum operated seismic survey and oneelectromagnetic (EM) survey, together with considerable geological andgeophysical work. The Company participated in two high risk / high rewardwildcat exploration wells during the year, and made significant advances inpreparing for drilling decisions on several other licences. The year wasparticularly active and very successful in securing new opportunities throughlicense rounds and acquisitions. This activity put significant demands on thetechnical teams which, in addition to progressing existing operated licences andscreening new opportunities, also undertook a substantial amount of originallicence application work. This was carried out both on behalf of FaroePetroleum as operator in two licences and also on behalf of several jointbidding groups, in both the UK and Norway, where the Company played a leadingrole in several successful applications. Atlantic Margin - Faroes Licence 002 (Faroe 100%) - Operator Foroya Kolvetni p/f Licence 002 is located close to the major producing Foinaven and Schiehallionoil fields as well as the undeveloped Suilven discovery. In addition to thepotential extension of the Marjun discovery from the adjacent Licence 001,Licence 002 contains a promising structural lead, Orodruin, with significantreserve potential. The licence benefits from both 2D and 3D seismic coverage aswell as considerable data generated from the 2003 Marimas well. The Company hasuntil August 2008 to re-process the 3D seismic and undertake a full technicalreview with the intention of maturing a prospect for drilling. Licence 005 (Faroe 25%) - Operator Eni Denmark BV This undrilled licence, located close to the Faroes/UK territorial boundaryoffers considerable potential, and is a direct analogue to the Cambo (AmeradaHess - 2002) and the Rosebank Lochnagar (Chevron - 2004) oil discoveries.Located 10 kilometres to the east is Cambo which encountered up to 50 metres ofgross oil column in the prospective Paleocene Rosebank interval, wassuccessfully appraised in 2004 by the Lindisfarne well. It is believed thatthere are plans for further appraisal in 2008 prior to a possible developmentdecision. Licence 005 also lies some 45 kilometres south west of thesignificant Chevron-operated Rosebank Lochnagar discovery which is beingappraised at present by three wells scheduled to complete in Q2 2007. Ann Marieis the most mature of several large structural prospects on Licence 005, locatedin a prominent structural trend offsetting the Corona Ridge, and in the former "white zone" area. The work programme during 2006 focused on the final mappingand interpretation of all available data, which confirmed the presence of aRosebank Lochnagar analogue structure with giant potential. The joint venturesubsequently committed to a firm well on Licence 005 to drill the Ann Marieprospect before August 2009. Licence 006 Brugdan (Faroe 4%) - Operator Statoil Faeroyene AS The Company acquired Petro-Canada's 4% working interest in Licence 006 onattractive terms and participated in the key sub-basalt Brugdan well drilled byStatoil in the summer of 2006, testing a very large high risk / high rewardprospect. This well did not encounter commercial hydrocarbons, but the gasshows and other geological data obtained are invaluable for continuingsub-basalt exploration in the area. This is the first sub-basalt well to bedrilled in a province noted for widespread presence of basalt, which due to itsphysical properties has made seismic interpretation particularly challenging.The well data is consequently very important to future Faroes exploration and toenhance understanding of the sub-basalt geology in neighbouring Licence 009 andun-tested prospects on Licence 006. Licence 009 Sildrekin (Faroe 10%) - Operator Statoil Faeroyene AS This licence contains a very large lead in 250 metres of water and is situatedin an attractive new exploration province on the western edge of the FaroePlatform. The 2006 work programme, consisting of new seismic and other dataacquisition and processing has been executed. Geological and geophysicalinterpretation of these new data incorporating the Brugdan well results is beingundertaken. Licence 012 Rannva (Faroe 100%) - Operator Foroya Kolvetni p/f This licence, which is located in 500 metres water depth some 170 kilometreswest of the BP-operated Schiehallion oil field, contains a very large lead alongthe axis of the Wyville-Thomson Ridge - the largest un-drilled anticline innorth west Europe. The work programme of processing the new seismic dataacquired in 2005 was successfully undertaken in 2006 by Faroe Petroleum. Thehigh quality seismic is being evaluated and discussions are being held withseveral potential partners with a view to farming out a joint work programme tofurther de-risk the prospect, prior to a well commitment being made. Atlantic Margin - United Kingdom Freya (Faroe 100%) - Operator Faroe Petroleum (U.K.) Limited This Frontier licence, awarded in 2004, and located in 140 metres of waterincludes the discovery made in 1980 by Mobil. The work programme of hightechnology seismic acquisition and processing was successfully undertaken in2006 by Faroe Petroleum. The Company wishes to proceed with an appraisal welland drill stem test to determine commerciality of the discovery. To that end, afarm-out is being progressed with a view to securing a drilling rig and drillingas early as possible. Seonaid (Faroe 100%) - Operator Faroe Petroleum (U.K.) Limited This Frontier Licence, awarded in 2004, and located in 140 metres of water hasan oil discovery made in 1974 by Elf and a number of promising structural leads. Existing seismic data has been reprocessed to high-grade and re-map theprospects, and a farm down process has commenced to attract potential jointventure partners in order to secure a commitment before end 2007 to drill a wellon the licence. Tornado (Faroe 20%) - Operator OMV (U.K.) Limited This Traditional Licence, awarded in 2004 in a location between the undevelopedSuilven discovery and Faroese Licence 002, contains the Tornado prospect withintie-back distance of Schiehallion. The work programme, consisting of theacquisition, processing and interpretation of seismic and electromagnetic (EM)surveys was completed in 2006, and the licence is currently being marketed forfarm out with a view to attracting a joint venture partner to share in FaroePetroleum's cost prior to a well commitment decision, expected in 2007. Lagavulin (Faroe 20%) and Talisker (Faroe 25%) - Operator Chevron North SeaLimited Awarded in 2004, these licences have very substantial prospectivity and arelocated on a northern extension of the Corona Ridge. The operator Chevronsuccessfully undertook the processing and interpretation of an extensive stateof the art, over-under long-offset 2D seismic survey acquired in 2005, and thisnew data is now being evaluated to identify optimal drilling locations, inadvance of drill or drop decisions in 2008 and 2010 respectively. Cardhu (Faroe 10%) - Operator Shell U.K. Limited This licence, awarded in 2004, has substantial prospectivity and is located onthe prospective Corona Ridge trend, some 50 kilometres north east of Chevron'sanalogous Rosebank Lochnagar discovery made in the same year. The operator hascompleted the reprocessing of 2,000 square kilometres of 3D seismic data as wellas the geological and geophysical interpretation, to prepare a potentialdrilling location in advance of a drill or drop decision in 2008. Glenshee (Blocks 217/21, 22, 26 & 216/30) (Faroe 30%) - Operator Chevron NorthSea Limited The Company has continued its long term deep water exploration relationship withChevron in securing the Glenshee licence in the UK 24th Licensing Roundannounced in January 2007. This Traditional Licence covers 800 squarekilometres on the highly prospective Corona Ridge trend currently beingappraised by three Rosebank Lochnagar wells, and is immediately adjacent to theTobermory gas discovery made by Mobil in 1998. With very significant resourcepotential, the licence work programme consists of a high technology EM surveyand seismic re processing, to re-map the Glenshee lead, and de-risking prior tomaking a drill or drop decision by the end of 2010. Marjun UK (Blocks 204/16, 17, 21, 22) (Faroe 100%) - Operator Faroe Petroleum(U.K.) Limited This 280 square kilometre Promote Licence was awarded 100% to Faroe Petroleum inthe UK 24th Licensing Round, and contains the 204/16-1 gas discovery with 30metres of hydrocarbon column, and is on the same trend as the Marjun oildiscovery drilled by Amerada Hess in 2001, which encountered 160 metres ofhydrocarbon column. The work programme consists of 3D seismic re-processing tore-map the extent of the hydrocarbon column, and geological studies tounderstand the reservoir potential, in order to identify a possible appraisaldrilling location in advance of a drill or drop decision by the beginning of2009. North SeaNorth Halibut (Blocks 14/21a, 22a) (Faroe 45%) - Operated by Oilexco (U.K.) Limited Acquired from Shell and ExxonMobil in 2005, this licence is located in shallowwater near to the giant producing Piper and Claymore oil fields. Followingsuccessful farm-out in January 2006, Oilexco drilled the Halibut play's firstexploration well (14/21a-1) in 2006, meeting 80% of the cost. The wellencountered gas shows and significant reservoir, but no commercial hydrocarbons.With the benefit of the 14/21a-1 well data, the joint venture has sincere-mapped the area, and an attractive prospect has been identified in contiguousblock 14/22a, which is a potential candidate for drilling in 2008. East Halibut (Faroe 100%) & West Halibut (Faroe 50%), Olivia (Faroe 100%) -Operator Faroe Petroleum (U.K.) Limited Awarded under the UK 23rd Licensing Round, these three Promote Licences containseveral attractive large structures with significant potential. They each liein shallow water within tie-back distance of several platforms. The workprogrammes to acquire 3D and 2D seismic data, carry out reprocessing andundertake geological modeling to identify suitable drilling locations, are nowcomplete. Ahead of drill or drop decisions at the end of 2007, the Company ispursuing farm-outs to attract funds for drilling. Lead A - Blocks 14/16, 17, 13/20 and 14/21b,22b (Faroe 45%) - Operator Oilexco North Sea Ltd Awarded in the UK 24th Licensing Round in February 2007, following a regionalstudy of the Halibut play, the joint venture applied for this 600 squarekilometre Traditional Licence which contains an attractive prospect to besurveyed with new 2D seismic in 2007. This prospect is a potential candidate forjoint venture partner Oilexco's drilling programme in 2008, for which it has adrilling rig on long term contract. Lead A lies adjacent to the Wytch GroundGraben oil source kitchen, is a four-way dip structure at Jurassic levels andhas significant oil resource potential. Blocks 13/14,15 (Faroe 45%) - Operator Oilexco North Sea LtdAwarded in the UK 24th Licensing Round in February 2007, this 400 squarekilometre Promote Licence contains several promising exploration leads whichwill be analysed and the seismic data over the leads reprocessed in 2007, priorto a drill or drop decision by the beginning of 2009. Keira 12/29 (Faroe 100%) - Operator Faroe Petroleum (U.K.) Limited This Traditional Licence, awarded in the UK 24th Licensing Round in February2007, and located immediately North of the Olivia Licence (Blocks 18/3, 4),covers approximately 200 square kilometres and contains the 12/29-1 oildiscovery, which tested 38 degree API oil (Beatrice type) from the Jurassicreservoir. In addition, there are attractive exploration prospects up-dip fromthis discovery well, and an appraisal well will be planned up-dip from thediscovery to test both the Jurassic oil column and the exploration potential inthe deeper Devonian reservoirs. The work programme consists of high technologyseismic acquisition, and geological studies in the first two years to identify adrilling location and to screen the entire area for prospectivity in advance ofa drill or drop decision. Breagh (Faroe 10%) - Operator Sterling Resources (UK) Limited In June 2006 the Company acquired a 10.0% equity stake in Blocks 42/13 and 42/12(operated by Sterling), which contain the Breagh gas discovery as well asun-drilled leads with good upside potential. This is a very attractive project,with an appraisal well planned to be drilled adjacent to the discovery well 43/13-2, in order to establish commercial reserves which if successful would leadto early development. Orca and Minke (Faroe 5.9%) - Operator GDF Britain Ltd In August 2006 Faroe Petroleum acquired from ConocoPhillips an equity stake in apackage of three undeveloped gas field discoveries: Minke Main field, which isunder development, together with the nearby Minke Graben and Orca gas fieldsupon which development decisions are anticipated. Minke Main is scheduled tocome on production during Q2 2007. The assets are situated in UK Blocks 44/24a,29b and 30, approximately 25 kilometres east of the producing Caister-Murdochgas fields and 13 kilometres south west of the D15 platform in the Dutch sector.Exploration potential also exists within Dutch Block D18a (Faroe 2.5%). Norway The following licences were awarded in January 2007: Halten Terrace AreaThe Company was awarded two licences in the prolific Halten Terrace hydrocarbonprovince of the Norwegian Sea. These licences offer excellent exploration andappraisal opportunities in an area which is in active development. Fogelberg, Halten Terrace Area Part blocks 6506/9&12 (Faroe 30%) - OperatorCentrica Resources Norge AS This licence covers approximately 80 square kilometres and contains a veryappealing prospect some eight kilometres to the north of the producing Smorbukkoil field. The structure is similar to the recent Morvin oil and gas discoverymade 10 kilometres to the south west, which was successfully appraised in 2006.Additional 3D seismic data will be acquired over the structure to define alocation for the committed exploration well to be drilled on the prospect withinthe next four years. Licence partners are Centrica (operator) and Petro-CanadaNorge AS. Halten Terrace Area Part blocks 6506/12, 6406/2&3 (Faroe 30%) - OperatorCentrica Resources Norge AS This licence covers approximately 240 square kilometres and represents anexcellent opportunity to appraise an existing discovery in the Lower Cretaceous.The discovery lies between the Smorbukk and Smorbukk Sor fields and already hasproven hydrocarbons in two wells. The work programme involves the reprocessingof existing 3D seismic data to better define the distribution of the potentialreserves, prior to a decision being taken within two years on whether to drillan appraisal well. Licence partners are Centrica (operator) and Petro-Canada. Marulk Basin Area Part blocks 33/2,3&6, 34/1&4 (Faroe 20%) - Operator NorskeConocoPhillips Norge AS This licence in the Marulk Basin Area, lies within a prolific oil-source kitchenarea located just to the north of the Tampen Spur hydrocarbon province whichincludes the Snorre Field. The licence offers an excellent explorationopportunity in an area which is under-explored. Spanning approximately 700square kilometers, in terms of structural and depositional setting, theprospects identified in the license are analogous to some of the largest fieldsfound in the North Sea. The resource potential of this licence is significantand will be clarified by the forward work programme, which involves obtainingand reprocessing 3D seismic data and a drill or drop decision within two years.Partners are ConocoPhillips (operator), Revus and Petro-Canada. Utsira High - Part blocks 25/3,5&6 (Faroe 20%) - Operator Pertra ASA Located to the east of the Frigg Field, this licence is in a mature oil and gasprovince, with discoveries and production from many stratigraphic levels. Thelicence covers approximately 570 square kilometres, and comprises severalprospects at Jurassic and Paleocene levels. The Jurassic structures areadjacent and analogous to the abandoned Froy Field, which the operator (Pertra)is planning to redevelop. The work programme includes reprocessing of existing3D seismic data prior to a decision being taken to drill an exploration wellwithin two years. Partners are Pertra (operator), Noreco and PA Resources. East of Ula Part blocks 7/9&12, 8/7,8,10&11 (Faroe 30%) - Operator CentricaResources Norge AS This licence is located on the flank of the prolific Central Graben,approximately 15 kilometres east of the Ula and Gyda Jurassic oil fields, andoffers an excellent exploration opportunity in an area which is under-explored.The licence covers approximately 650 square kilometres, and the identifiedprospectivity is located adjacent to an untested salt diapir which has manyanalogues in the Central Graben. The work programme involves reprocessing ofexisting 2D and 3D seismic data, with a drill or drop decision within two years. Partners are Centrica (operator) and Petro-Canada. 35/8 Area Part block 35/8 (Faroe 30%) - Operator Petro-Canada Norge AS This licence is located in the vicinity of the Fram/Gjoa fields, in the northernpart of the Norwegian North Sea. The licence covers approximately 175 squarekilometres, is located in the Sogn Graben, eight kilometres to the northeast ofthe 35/8-1 Vega discovery, and contains a number of interesting leads in moreunconventional plays. There are a number of prospective levels in the licenceand existing 3D seismic data will be reprocessed and evaluated prior to a drillor drop decision within two years. Partners are Petro-Canada (operator) andCentrica. Forward Drilling Programme The Company has been very active in moving forward its pre-drilling workprogrammes to the point where several significant wells are expected to bedrilled over the coming years. The Company has assembled a very promisingportfolio of projects with a good balance of risk and reward and material equitystakes and has raised finance during the period to support its drillingprogramme. The Company has also secured a participation in the Breagh gasappraisal well planned for drilling in 2007. Coupled with the execution ofsuccessful acquisitions in the Southern Gas Basin, which has secured an activenew programme of field appraisal and development, drilling and seismicacquisition activity will build pace over the coming years. Outlook In addition to advancing the exploration and appraisal drilling programme, theCompany is focusing on commercial opportunities to strengthen the Companyfurther, and Faroe Petroleum's ability to create substantial value forshareholders. In line with the Company's objective to improve portfolio balancein respect of risk / reward and drilling timetable, Faroe Petroleum is lookingto identify further lower risk, and nearer term opportunities to complement thehigh risk / high reward activities in the Atlantic Margin. Notably all new licences from the UK and Norway Rounds were secured withrelatively low work programme commitments, thus providing the Company withconsiderable flexibility as regards financing and timing. Further, due toNorway's very attractive fiscal regime, emphasis will be given to participationin drilling opportunities in Norway which can be financed in part through acredit facility currently under negotiation, substantially reducing the equitycontributions needed. Progress is expected to be reported through the yearregarding an active farm-out process to secure financing partners for a numberof wells in the drilling programme. The outlook for the Company is bright. Oil and gas prices have remained highthroughout 2006 and look set to continue to be strong for the foreseeablefuture. We have an excellent portfolio with many high potential drillingopportunities being advanced, we are well financed, we have near-termexpectation of revenues from the Minke Main development, and we have anoutstanding and motivated team. Joe Darby Graham StewartChairman Chief Executive Consolidated profit and loss account for the year ended 31 December 2006 Restated 2006 2005 £000 £000Administrative expenses (3,140) (1,354) Group operating loss (3,140) (1,354)Other interest receivable and similar income 1,551 907Interest payable and similar charges (800) (17) Loss on ordinary activities before taxation (2,389) (464)Tax on profit on ordinary activities 801 - Net loss (1,558) (464) Basic and diluted loss per share (p) (2.4) (0.9) All amounts relate to continuing operations. There is no difference between the historical cost profits and losses and theprofits and losses as presented in the profit and loss account above. Consolidated balance sheet at 31 December 2006 Restated 2006 2005 £000 £000Fixed assetsIntangible assets 19,647 12,298Tangible assets 2,734 110Investments 11 11 22,392 12,419 Current assetsDebtors 2,578 398Current tax receivable 1,052 -Cash at bank and in hand 33,016 22,851 36,646 23,249 Creditors: amounts falling due within one year (2,954) (2,048) Net current assets 33,692 21,201 Total assets less current liabilities 56,084 33,620 Provision for liabilities (251) - Net assets (excluding pension liability) 55,833 33,620 Pension liability (86) - Net assets (including pension liabilities) 55,747 33,620 Capital and reservesCalled up share capital 7,382 5,518Share premium account 51,813 30,113Merger reserve 1,086 1,086Profit and loss account (4,534) (3,097) Shareholders' funds 55,747 33,620 Consolidated cash flow statement for the year ended 31 December 2006 2006 2005 £000 £000 Net cash outflow from operating activities (4,362) (567)Returns on investments and servicing of finance 1,375 907Capital expenditure (9,525) (2,683) Cash outflow before management of liquid resources andfinancing (12,512) (2,343) FinancingIssue of shares 25,082 13,400Issue costs (1,518) (819) Increase in cash in the period 11,052 10,238 Consolidated statement of total recognised gains and losses for the year ended 31 December 2006 Restated 2006 2005 £000 £000 Loss for the financial year (1,588) (464)Net exchange losses on foreign currency net investments (263) (273) Total recognised losses relating to the financial year (1,851) (737) Consolidated reconciliation of movements in shareholders' funds for the year ended 31 December 2006 Restated £000 £000 Loss for the financial year (1,588) (464)Exchange losses on foreign currency net investments (263) (273)Fair value of share options 414 178New share capital issued 23,564 12,581 Net movement in shareholders' funds 22,127 12,022Opening shareholders' funds 33,620 21,598 Closing shareholders' funds 55,747 33,620 Notes 1. The financial information set out above does not constitutethe Company's statutory accounts for the years ended 31 December 2006 or 2005.The financial information for 2005 is derived from the statutory accounts for2005 which have been delivered to the Registrar of Companies but have beenrestated following the adoption of FRS 20 (see note 5). The auditors havereported on the 2005 accounts; their report was unqualified and did not containa statement under section 237(2) or (3) of the Companies Act 1985. Thestatutory accounts for 2006 will be finalised on the basis of the financialinformation presented by the Directors in this preliminary announcement and willbe delivered to the Registrar of Companies. 2. No dividend is proposed. 3. The calculation of loss per ordinary share is based onlosses of £1,588,000 at 31 December 2006 (2005 restated: £464,000) and theweighted average number of ordinary shares outstanding of 67,295,447 (2005:51,571,080). There is no difference between the diluted loss per share and theloss per share presented. 4. Notes on the cash flow statement: Reconciliation of operating loss to net Restatedcashflow from operating activities 2006 2005 £000 £000Operating loss (3,140) (1,354)Depreciation charges 124 37Fair value of share options 414 178Increase in debtors (2,021) (270)Increase in creditors 261 842 Net cash outflow from operating activities (4,362) (567) Capital expenditure analysis Restated 2006 2005 £000 £000 Additions to fixed assets 8,606 3,734Amounts paid and received in respect of licence interests 919 (1,051) Net cash outflow from capital expenditure 9,525 2,683 5. Effective 1 January 2006 the Group has adopted FRS 20 ShareBased Payments for accounting for share based payments. Under FRS 20, an expenseis recognised in the profit and loss account for all share-based payments basedon the fair value at the date of grant using the Black-Scholes and Monte Carlopricing models. Compliance with FRS 20 has reduced 31 December 2005shareholders' funds by £nil and increased the 2005 loss by £178,000. The netloss for 31 December 2006 has been increased by £414,000. 6. In connection with the setup of Faroe Petroleum Norge AS,the Company has established a defined benefits scheme which is accounted for inaccordance with FRS 17 'Retirement Benefits'. Accordingly a liability of £87,000has been recognised in respect of future benefits payments. Notes (continued) 7. As described on page 5 the Company will receive £1,052,000as a tax refund on exploration expenditure in Norway, £801,000 of which has beencredited to the profit and loss account and £251,000 recognised as a deferredtax liability relating to exploration expenditure capitalised at 31 December2006. The deferred tax liability will be released as the capitalisedexploration costs are recognised in the profit and loss account by way of adepletion charge. 8. Faroe Petroleum will adopt International FinancialReporting Standards (IFRS) with effect from 1 January 2007. The first resultsto be prepared under this basis will be the 2007 interim results later thisyear. The exercise to restate the 2006 figures is ongoing and a fullre-statement of the 2006 UK GAAP figures, together with a reconciliation of theadjustments from UK GAAP to IFRS, will be presented in the 2007 interim results. On the basis of our current understanding, the standard with the main impacton the Group figures will relate to the application of IFRS 6 "Exploration forand evaluation of mineral resources". 9. On 30 January 2007 the Company announced the award of sixNorwegian exploration licences made under the Norwegian APA Round, details ofwhich are contained in the Review of Activities on page 7 to 12. On 1 February 2007 the Company announced the award of five licences, two West ofShetland and three in the North Sea, under the UK 24th Licensing Round detailsof which are contained in the Review of Activities on page 7 to 12. 10. Copies of the full accounts will be posted to allshareholders. Further copies will be available from the Company's head office at24 Carden Place, Aberdeen AB10 1UQ, from the date of posting. Telephone +44 (0)1224 652810. This information is provided by RNS The company news service from the London Stock Exchange