Faroe Petroleum Plc Regulatory News (FPM)

10 Sep 2007 07:01

Faroe Petroleum PLC10 September 2007 10 September 2007 FAROE PETROLEUM PLC ("Faroe Petroleum", "Faroe", the "Company" or the "Group") Unaudited Interim Results for the six months ended 30 June 2007 Faroe Petroleum, the independent oil and gas group focused on exploration,appraisal and development offshore North West Europe, with 34 licences in theFaroe Islands, UK West of Shetlands, the North Sea and Norway, announces itsunaudited Interim Results for the six months ended 30 June 2007. HIGHLIGHTS Financial & Corporate• Turnover of £49,000 from Minke Main gas field production - came on stream 21st June 2007• Loss of £0.6 million (30 June 2006 restated: loss of £1.5 million)• Cash of £29.7 million (30 June 2006: £42.4 million) - sufficient funds to meet current commitments• Revolving credit facility of £10 million secured with Bank of Scotland for exploration in Norway Strategy• Robust portfolio strategy for creating value in Atlantic Margin, the North Sea and Norway• 34 licence portfolio spans exploration, appraisal, development and production: O high impact exploration, focused mainly in the Atlantic Margin and mid-Norway; O medium impact, near infrastructure exploration in the UK and Norwegian North Sea; O low risk appraisal in shallow water UK and Norwegian North Sea; and O low risk development and production licences in the UK and Dutch Southern North Sea Activity• Faroe's Atlantic Margin position enhanced by Chevron's Rosebank appraisal success and Total's recently announced gas condensate discovery close to Laggan gas field• Important success entering Norway - most successful new entrant in latest licensing round• Farm outs of four West of Shetland deep water exploration wells to Idemitsu• Rigs secured for drilling the Breagh gas appraisal well in September 2007 plus the Anne Marie prospect in Faroe and the Fogelberg prospect in Norway in 2008/2009• Milestone first gas production and income - Minke Main field on stream at 60 mmscfd gross• Good technical progress being made to de-risk and mature many prospects for drilling Outlook• Firming up drilling programme, starting with Breagh appraisal well in September 2007• Orca and Minke Graben gas field development plans progressing• Preparing to farm out further Atlantic Margin wells• Preparations underway for applications in Norway's APA 2007 Licensing Round• Further commercial activity underway to secure greater portfolio diversification• Highly experienced and motivated team driving programme forward Graham Stewart, Chief Executive, commented: "The first half of 2007 has seen us make our mark in several ways. Our earlymove into Norway was rewarded with seven much sought after new licences in anumber of strong joint ventures. The Company achieved the major milestone offirst production from the new Minke gas field development, which came on streamwithin a year of acquisition. We are also delighted to have executed afour-well farm-out to Idemitsu, thereby significantly reducing our cost exposurein the deep-water Atlantic Margin. The Company is now preparing for an excitingappraisal well in the Southern Gas Basin later this month with several furtherwells firming up for drilling and rigs contracted. "After over four years with the Company, Non-executive Chairman Mr Joe Darby isleaving to pursue other opportunities. Joe has been an excellent chairman forthe Company and we wish him well in the future. Mr John Bentley has sincejoined the Board as our new Non-executive Chairman. John has over 35 years oiland gas experience and we look forward to an increasingly fruitful period aheadwith him." ENQUIRIES: Faroe Petroleum plcGraham StewartTel: 01224 652 810gstewart@faroe-petroleum.com Financial DynamicsBilly Clegg/Ed WestroppTel: 020 7269 7157billy.clegg@fd.comedward.westropp@fd.com Panmure Gordon & CoKatherine RoeTel: 020 7459 3600Katherine.roe@panmure.com CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW We are pleased to announce the unaudited Interim Results for the six months to30 June 2007 for Faroe Petroleum. Substantial progress was made during thefirst half of 2007, strengthening the Company, building on its strongexploration and appraisal portfolio and diversifying risk to include developmentand production, with licences offshore UK, Faroe Islands, Norway and Holland.Oil prices have remained high and relatively stable over the period, leading tocontinuing high rig utilisation, and increasing exploration costs andcompetition. Despite this, and the knock-on effect of drilling delays, wecontinue to make excellent progress towards our strategic objectives. Our entry in to Norway, which was designed to take advantage of significantunder-explored opportunities and the attractive fiscal regime was rewarded withthe announcement earlier this year of seven new licence awards to FaroePetroleum, making the Company the most successful new entrant in Norway's mostrecent licencing round. This demonstrates the considerable value of theCompany's timely move in early 2006 to secure the highly experienced formerPaladin Resources Norway team, and bodes well for our future growth in Norway. As the high impact West of Shetlands drilling timetable progresses towardsdrilling, we are very pleased to have farmed out four deep water wells toIdemitsu. This achievement substantially reduces Faroe's cost exposure in thesehigh cost wells, while retaining sufficient licence equity in each licence,given the substantial prospect sizes, to provide very significant value creationon drilling success. We are also delighted to see the revenues from Faroe's first Southern Gas Basinacquisition, within one year of acquisition, in the form of the Company'slandmark first production and cashflow from the Minke Main gas field which cameon stream in June. Although relatively small, this is the first of three gasfield developments scheduled for development over the coming years. Anappraisal well on the significant Breagh gas discovery, acquired by the Companyin 2006, will be drilled in September this year to test commerciality. In eachof the Breagh, Orca and Minke fields, Faroe Petroleum has secured interests inlow risk appraisal and development opportunities with additional explorationupside. This near-term, non-operated production activity, through a spread offields, has been secured in order to provide tax efficient cashflow to underpincosts going forward, thereby enhancing the Company's ability to finance itsexploration and appraisal programme. In addition, the Company expects thesedevelopments to allow the introduction of gearing through bank debt. Key assets for high impact value creation are in the Atlantic Margin, with a 13licence portfolio, encompassing the UK West of Shetlands and the Faroe Islands.The Company continues to hold material stakes in these licences in partnershipswith mostly the major oil companies which include BP, Chevron, DONG, Eni,Idemitsu, OMV, Shell and Statoil. Prospects on these licences are world class,with vast resource potential, benefiting from nearby discoveries in severalcases, increasing local production and export infrastructure, proximity tomarkets and not least political stability. Furthermore, Chevron's announcementearlier this year of the successful appraisal of its Rosebank discovery hassubstantially reduced exploration risk on the Corona Ridge on which Faroe holdssix licences, three of which are in joint ventures with Chevron as operator. Inaddition, the nearby giant Clair oil field is understood to be continuing tooutperform expectations while the Laggan gas field is reported to be makingsteady progress towards development. The gas potential in this area has beenfurther enhanced through the recent announcement by Total of a new gascondensate discovery, 15 kilometres from Laggan. Faroe Petroleum's primary objective is to create value through the commercialexploitation of its asset base. Participation in a material drilling programmeis key to that end, and requires a mature, high quality portfolio together withthe wherewithall to drill. Continuing high oil prices have dramaticallyincreased rig rates and demands with the consequence that drilling plans aretaking longer to firm up. In order to expedite the Company's drilling activity,we continue to apply considerable effort to mature Faroe's operated licences,and to encourage and support the operators in our non-operated licences. Inparallel, we continue to commit significant resources to identifying newopportunities for participation in drilling activity in our core areas. It isclearly very important for the Company and its shareholders that Faroe'sparticipation in drilling its portfolio of wells is secure and that materialequity levels are retained. To that end, much emphasis is given to ensuring thefinancial strength of the Company. This involves managing financial exposureand equity levels in forthcoming wells to optimise the Company's financialresources of cash reserves and revenues, mainly through farm out. With 34 licences now in total, spanning some 13,895 square kilometres, the Grouphas a spread of excellent exploration, appraisal and development opportunitiesin its portfolio. The licences are split as follows: O high impact exploration, focused mainly in the Atlantic Margin and mid-Norway; O medium impact, near infrastructure exploration in the UK and Norwegian North Sea; O low risk appraisal in shallow water UK and Norwegian North Sea,; and O low risk development and production licences in the UK and Dutch Southern North Sea RESULTS The Group received its first revenues from production of £49,000 during theperiod, reflecting one week of production. Initial net gas production from thenewly developed Minke Main gas field was approximately 600 boepd during June2007. The Group had cash reserves of £29.7 million at 30 June 2007 (30 June2006: £42.4 million), and has adequate funds to meet all firm work programmecommitments. The Group made a loss of £0.6 million in the period (30 June 2006:loss of £1.5 million restated). Agreement was reached with the Bank of Scotlandfor a revolving credit facility in the amount of Norwegian Kroner 120 million(approximately £10 million) to finance the first phase of the Company'sNorwegian exploration and appraisal programme. In Norway, exploration-focusedcompanies such as Faroe Petroleum can recover 78% of exploration- andappraisal-related expenditure in the following tax year. Under the terms of therevolving credit facility 75% of all Faroe's exploration, appraisal andsupporting expenditure in Norway will be financed by the Bank of Scotland. The Board of Directors does not recommend the payment of a dividend. REVIEW OF ACTIVITIES Atlantic Margin With the award of two new licences, Glenshee (Faroe 30% - Operated by Chevron)and Marjun (Faroe 100%), in the West of Shetlands area in February, the Companyholds a good spread of 13 high potential Atlantic Margin licences. Glenshee islocated adjacent to the 0.5 trillion cubic feet Tobermory gas discovery, andlies on the highly prospective Corona Ridge which contains the Chevron-operatedRosebank discovery. Marjun includes the 204/16-1 gas discovery with 30 metresof hydrocarbon column, on the same trend as the Marjun oil discovery drilled byAmerada Hess in 2001, which encountered a 160 metres hydrocarbon column. In line with the Company's stated objectives to reduce its cost exposure in highcost wells, an agreement was reached with Idemitsu to farm out four deep waterwells on the Talisker (Faroe 12.5% post farm out), Lagavulin (Faroe 10% postfarm out), Cardhu (Faroe 5% post farm out) and Tornado (Faroe 10% post farm out)prospects in deep water UK West of Shetlands. This achievement has been reachedahead of taking on the drilling commitments, and provides a good cost carry anda substantial reduction in Faroe's cost exposure. A rig is currently beingsought by OMV to drill the Tornado prospect, located near to the Suilven field,in 2008/2009. The highly prospective Cardhu, Lagavulin and Talisker licencesall lie on the same trend as Chevron's significant Rosebank discovery. Licence 005, Anne Marie (Faroe 25%) is a particularly exciting large prospectlocated in a prominent structural trend offsetting the Corona Ridge, on whichthe Rosebank oil discovery is situated, thereby reducing considerably the riskon Anne Marie. Faroe and joint venture partner Eni have committed to drill anexploration well by mid-2009, for which a rig has been sourced by Eni. Extensive reservoir modelling work has delayed the farm out of the shallow waterFreya discovery licence (Faroe 100%), adjacent to the BP operated Clair oilfield, until later this year. Good progress is being made on all Faroe's Atlantic Margin licences, in order tomature prospects towards drilling. UK North Sea With the aim of improving portfolio diversification and balance, Faroe commencedits expansion into the North Sea in 2005 through acquisition from Shell andExxonMobil of a licence in the unexplored Halibut play, in the prolific OuterMoray Firth. With the recent award of three 24th Round licences in the UKCentral North Sea Faroe holds 12 UK North Sea licences. The Company thereforenow has a significant position in the Moray Firth and, through 2006acquisitions, a good initial position in the Southern Gas Basin. The Moray Firth is a prospective, yet under-explored, Central North Sea regionwhich benefits from a shallow water location and significant oil and gasinfrastructure to allow early field development of discoveries. In this area,which has generated several very large fields including the giant producingPiper and Claymore oil fields, Faroe now holds seven licences with substantiallicence equity ahead of drilling activity. Three of these are held inpartnership with Oilexco, with equities ranging from 45% to 100%. In addition,the Keira licence (Faroe 100%) contains a Jurassic oil discovery which whendrilled by Kerr McGee in 1981 recovered Beatrice crude oil with 38 degree API.A substantial technical work programme on the Moray Firth licences is underwayto mature prospects for drilling. In the Southern Gas Basin, Faroe has focused on securing relatively low equity,low risk appraisal and development opportunities, with the potential for nearterm cashflow generation. To date these have focused on carboniferous gasfields, which include the Minke and Orca fields, and also the soon to beappraised Breagh discovery. The Minke and Orca fields (Faroe 6%) were acquired from ConocoPhillips in 2006and within less than one year the Company announced that the Minke Main gasfield in block 44/24a had been brought on stream. This is expected to befollowed by the Minke Graben and Orca fields in due course. The Minke Mainfield development is operated by Gaz de France, and exports gas through the NGTpipeline into Holland via the D15 platform. The field flowed 60 millionstandard cubic feet per day gross (approximately 600 boepd net to Faroe) onproduction, and has reserves in the order of 2.6 billion cubic feet net toFaroe. Development decisions on Minke Graben and Orca will be made once MinkeMain production history and subsequent field re-mapping have been incorporated,in order that the most efficient development options are chosen. Minke Grabenis expected to be of a similar size to Minke Main and Orca considerably largerthan Minke Main. Breagh (Faroe 10%) is an exciting opportunity to appraise a significant gasdiscovery in the Southern Gas Basin. The interest was acquired from SterlingResources in 2006. An appraisal well is scheduled to be drilled adjacent to thediscovery well 43/13-2, in order to establish commercial reserves, which ifsuccessful is expected to lead to early development. The Ensco 85 drilling righas been contracted for this well, which is expected to commence drilling inlate September. In addition to the Breagh gas discovery this acreage containsun-drilled leads with good upside potential to enhance value on this licence. Norway As an important new element of Faroe's portfolio diversification strategy, thedecision was taken in 2005 to enter Norway. This decision was principally basedon the country's vast potential for resources, its outstanding explorationsuccess rate, the fact that it remains an under-explored province, as well asthe strong growth rate in the Norwegian oil industry. Norway has implemented avery favourable tax structure designed to incentivise exploration. This hasresulted in a dramatic increase in the number of companies entering theNorwegian oil and gas market. All new entrants are required to pre-qualify inorder to demonstrate their suitability and commitment to becoming a licencee onthe Norwegian Continental Shelf. To achieve pre-qualification and be preparedfor its first licensing round application in September 2006, the Company hiredin February 2006 an exceptionally well qualified and experienced team,substantially from the former Paladin Resources Norway company (acquired byTalisman in early 2006). This move was rewarded this year with the award of seven new 2006 APA (Awards inPre-defined Areas) Round exploration licences spanning the Norwegian Sea and theNorwegian North Sea areas, making the Company the most successful new entrant inthis highly competitive licensing round. Furthermore, Faroe was successful injoining forces with a number of high quality bidding groups, with some verysuccessful oil and gas companies, which include Centrica, ConocoPhillips, DNO,Dana, Lundin, Noreco, PA Resources, Pertra, Petro-Canada and Revus. While Faroeis not yet qualified to act as operator in Norway, much of the screening,sub-surface analysis, generation of prospects and application work wasundertaken by the Company's in-house team. The licences are all located inareas near to existing fields and infrastructure, and therefore offer theattractive potential for early field development of discoveries. Two licences in the Norwegian Sea were awarded in partnership with Centrica andPetro-Canada. These licences offer excellent exploration and appraisalopportunities in an area which is already in active development. These includethe Fogelberg and T-Rex licences (both Faroe 30%). Fogelberg is located someeight kilometres to the north of the producing Smorbukk Field and close to therecent Morvin oil and gas discovery 10 kilometres to the southwest, which wassuccessfully appraised by Statoil in 2006. A seismic acquisition programme willbe undertaken in mid-2008 and the West Alpha drilling rig has been contractedfrom SeaDrill to drill the Fogelberg prospect in 2009. Partners are CentricaResources Norge (operator) and Petro-Canada Norge AS. The T-Rex prospectrepresents an opportunity to appraise an existing discovery in the LowerCretaceous. The discovery lies between the Smorbukk and Smorbukk Sor fields andalready has proven hydrocarbons in two wells. Following seismic reprocessing adecision on whether to drill an appraisal well will be taken by end 2008. Faroe Petroleum was also awarded five new licences in the Norwegian North Seawhich include the high potential Marulk Basin (Faroe 20%), just to the north ofthe Snorre Field, in the Tampen Spur hydrocarbon province. 3D seismicreprocessing and interpretation work will be undertaken before a drill or dropdecision by end 2008. Joint venture partners are Norske ConocoPhillips, RevusEnergy and Petro-Canada Norge. The Company was also awarded, together with joint venture partners Pertra,Norwegian Energy Company, and PA Resources Norway, the high potential UtsiraHigh licence (Faroe 20%), located to the east of the Frigg Field, and withprospects analogous to the Froy field. Faroe Petroleum, together with partners Centrica and Petro-Canada, was alsoawarded the highly prospective Butch Cassidy and Icarus licences (Faroe 30%).Located on the flank of the prolific Central Graben, Butch Cassidy isapproximately 15 kilometres east of the Ula and Gyda Jurassic oil fields. TheIcarus licence is located in the Sogn Graben, eight kilometres to the northeastof the 35/8-1 Vega discovery in the northern part of the Norwegian North Sea.Finally, the Company was also awarded, together with DNO, Dana and Lundin, theClapton licence (Faroe 20%), which contains a chalk prospect and lead, both ofwhich are located close to the Valhall Field. The licence is situated withinthe prolific chalk basin, which has to date produced well over 3.5 billionbarrels of oil. Existing 3D seismic data will be re-processed to identify adrilling location. Preparations are underway to apply for further licences in the 2007 APA Roundand 2008 20th Round. The combination of Faroe's now exceptional knowledge ofNorway, its very good relationships with many significant Norway-focused oilcompanies and its success in the last Licensing Round greatly enhances itspotential to build a strong position in the country. BOARD OF MANAGEMENT Mr John Bentley was appointed to the Board as Non-executive Chairman, effective1 September 2007, to replace Mr Joe Darby who retires after four years as theCompany's Non-executive Chairman. Mr Bentley has over 35 years experience inthe natural resources sector. He was Managing Director of Gencor's Brazilianmining company, Sao Bento Mineracao, from 1988 to 1993 when he became chiefexecutive of Engen's E&P division. In 1996 he was instrumental in spinning offEnergy Africa from Engen and listing it on the Johannesburg and Luxembourg stockexchanges. As chief executive during its first five years he grew Energy Africainto one of the leading independent E&P companies in Africa. The Board extendsits sincere gratitude to Mr Darby for his significant contribution to theCompany's progress during his four years as Chairman, presiding over thebusiness from a pre-IPO exploration company with two licences in the Faroes, toa well resourced and well positioned exploration and production company withconsiderable potential. Mr Helge Hammer was appointed to the Board of the Company effective 13 March2007 as an executive director. Mr Hammer is the Managing Director of theCompany's subsidiary Faroe Petroleum Norge AS, based in Stavanger. He joinedFaroe Petroleum from Paladin Resources Norway where he was Deputy ManagingDirector, after a very successful international career with Shell. Mr Roger Witts was also appointed to the Board effective 29 June 2007 as FinanceDirector.Mr Witts is a Chartered Accountant with over 30 years oil industry experienceincluding as Finance Director of Fina Exploration Ltd, Thomson North Sea plc andSeafield Resources plc. Mr Witts has considerable experience in financialdisciplines including fund raising, strategic planning, risk management andfinancial reporting. We look forward to a very fruitful relationship with Mr Bentley, Mr Hammer andMr Witts going forward. OUTLOOK We expect to see increased activity with respect to both drilling and fielddevelopment for the year ahead. Drilling rigs have been secured for drillingthe Breagh well in the Southern North Sea in September, the Anne Marie andFogelberg wells in Faroe and Norway in 2008/2009, and drilling plans are beingfirmed up for further wells in the programme. In addition, we will continue toapply for more licences, particularly in Norway as we look to build criticalmass and a drilling programme to add to the initial commitment well on theFogelberg prospect. Drilling opportunities in Norway will be financed in largepart by the Norwegian State and, with the Company's new revolving creditfacility now in place, we are well positioned to participate in an activedrilling programme going forward. Commercial opportunities will also continueto be a key focus as we seek out good, value enhancing additions to theportfolio. These will include potential well farm ins or swaps, as well aspossible near-term development and production opportunities to maximise our useof tax losses and our ability to generate revenues to strengthen the Company'sfinances. Emphasis will continue on farming out future wells in our drilling programme tooptimise our equity and cost exposure and thereby maximise upside. With continuing high oil and gas prices, exploration and appraisal projects arehigh on the agenda of an increasing number of oil companies. Faroe Petroleumhas an excellent portfolio with many significant drilling opportunities, we arewell financed, we have modest production revenues from the Minke Main gas fieldwith further developments to follow, and we have an exceptionally strong andmotivated team to deliver value for our shareholders. Graham D StewartChief Executive John BentleyChairman 7 September 2007 Group Income Statement Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 Revenue 49 - -Cost of sales (8) - - Gross profit 41 - - Exploration and evaluation expenses (1,541) (622) (1,006)Administrative expenses (758) (1,215) (2,921) Operating loss (2,258) (1,837) (3,927) Interest income 847 617 1,551Finance costs (41) (493) (800) Loss on ordinary activities before tax (1,452) (1,713) (3,176) Tax on loss on ordinary activities 869 220 801 Loss for the year (583) (1,493) (2,375) Basic and diluted loss per share (pence) (0.8) (2.5) (3.5) Group Balance Sheet Unaudited Unaudited Audited 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000 Non-current assetsIntangible assets 17,831 11,987 16,099Property, plant and machinery 4,410 529 2,560Investments 11 11 11 22,252 12,527 18,670 Current assetsTrade and other receivables 1,620 396 2,578Current tax receivable 2,295 289 1,052Cash and cash equivalents 29,679 42,435 33,016 33,594 43,120 36,646 Total assets 55,846 55,647 55,316 Current liabilitiesTrade and other payables (2,114) (2,527) (2,954)Current tax payable (53) - - (2,167) (2,527) (2,954) Non-current liabilitiesBorrowing (1,418) - -Provision for deferred tax (550) (69) (251)Provision for liabilities and charges (115) - (115)Defined benefit pension plan deficit (45) (43) (86) (2,128) (112) (452) Total liabilities (4,295) (2,639) (3,406) Net assets 51,551 53,008 51,910 Equity attributable to equity holdersCalled up share capital 7,382 7,382 7,382Share premium account 51,813 51,816 51,813Other reserves 1,086 1,086 1,086Profit and loss account (8,730) (7,276) (8,371) Total equity 51,551 53,008 51,910 These interim results were approved by the Board of directors on 7 September2007 and were signed on its behalf by: Graham D StewartDirector Group Cash Flow Statement Unaudited Unaudited Audited Six months to Six months to Year to 30 June 2007 30 June 2006 31 December 2006 £000 £000 £000Operating activitiesCashflow from operations (1,229) (1,848) (5,149)Interest received 958 579 1,394Interest paid (18) (10) (19) Net cashflow from operating activities (289) (1,279) (3,774) Investing activitiesExpenditure on intangible and tangible assets (4,352) (2,208) (7,819)Payments to acquire investments - - (919) Net cashflow from investing activities (4,352) (2,208) (8,738) Financing activitiesIssue of ordinary share capital - 25,085 25,082Issue costs - (1,518) (1,518)Draw-down of credit facility 1,418 - - Net cashflow from financing activities 1,418 23,567 23,564 Exchange differences (114) (496) (887) Net increase in cash and cash equivalents (3,337) 19,584 10,165Cash and cash equivalents at the beginning of 33,016 22,851 22,851the year Cash and cash equivalents at the end of the 29,679 42,435 33,016year Group Statement of Changes in Equity Unaudited Unaudited Audited Six months to Six months to Year to 31 December 30 June 2007 30 June 2006 2006 £000 £000 £000 Loss for the year (583) (1,493) (2,375)Exchange gains/(losses) on foreign currency (64) 74 (264)net investmentShare option charges 288 289 414New capital issued - 23,567 23,564 Net movement in shareholders' funds (359) 22,437 21,339 Opening shareholders' funds 51,910 30,571 30,571 Closing shareholders' funds 51,551 53,008 51,910 Notes (i) Basis of preparation The financial information contained in this announcement does not constitutestatutory financial statements within the meaning of Section 240 of theCompanies Act 1985. Details of the Group's conversion to International Financial Reporting Standards("IFRS") and the impact on 2006 and prior period UK GAAP results are presentedin the IFRS First Time Adoption Statement (the "IFRS Statement") which isavailable on the Group's website (www.faroe-petroleum.com). The comparativefigures for the year ended 31 December 2006 and period ended 30 June 2006 whichare presented in these interim results are based on the IFRS Statement. TheIFRS Statement includes a summary of the Group's significant accounting policiesapplicable under IFRS and these policies have been applied to the interimresults for the six months ended 30 June 2007 with the addition of the revenueaccounting policy which was not disclosed in that statement. The Group's revenue accounting policy is that turnover reflects sales, net ofVAT and royalties, in respect of liftings in accordance with contracts. Anyimbalances between production and liftings, either production greater thanliftings (underlift) or liftings greater than production (overlift) arereflected in cost of sales at market value. The next annual financial statements of the group will be prepared in accordancewith those IFRSs adopted for use by the European Union, and it is theexpectation of the directors that the accounting policies applied in the interimresults for the six months ended 30 June 2007 will be applied in those annualfinancial statements. The financial information for the six months ended 30 June 2007 is unaudited. Inthe opinion of the directors the financial information for this period fairlypresents the financial position, results of operations and cash flows for theperiod in compliance with IFRS. (ii) Loss per share The calculation of loss per share is based on the weighted average number ofordinary shares in issue during the period of 73,817,916 (30 June 2006:62,303,532, 31 December 2006: 67,295,447). There is no difference between thediluted loss per share and the loss per share presented. (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 atthe rate of exchange ruling at the balance sheet date. Income and expenses aretranslated at weighted average exchange rates for the year. The resultingexchange differences are taken directly to a separate component of equity. Ondisposal of a foreign entity, the deferred cumulative amount recognised inequity relating to that particular foreign operation is recognised in the incomestatement. (v) Reconciliation of loss on ordinary activities to cashflow from operations Unaudited Unaudited Audited Six Months to Six Months to Year to 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Operating loss (2,258) (1,837) (3,927)Depreciation charges 90 52 124Fair value of share options 288 289 414 (Increase)/decrease in operating debtors 749 42 (2,021)(Decrease)/increase in operating creditors (98) (394) 261 Cashflow from operations (1,229) (1,848) (5,149) INDEPENDENT REVIEW REPORT TO FAROE PETROLEUM PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the Group Income Statement,Group Balance Sheet, Group Cash Flow Statement, Group Statement of Changes inEquity and the related notes (i) to (v). We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. This report is made solely to the company having regard to guidance contained inBulletin 1999/4 'Review of interim financial information' issued by the AuditingPractices Board. To the fullest extent permitted by the law, we do not accept orassume responsibility to anyone other than the company, for our work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report as required by the AIM Rulesissued by the London Stock Exchange. As disclosed in note (i), the next annual financial statements of the group willbe prepared in accordance with those IFRSs adopted for use by the EuropeanUnion. The accounting policies are consistent with those that the directorsintend to use in the next financial statements. Review work performed We conducted our review having regard to the guidance contained in Bulletin 1999/4 'Review of interim financial information' issued by the AuditingPractices Board for use in the United Kingdom. A review consists principally ofmaking enquiries of group management and applying analytical procedures to thefinancial information and underlying financial data, and based thereon,assessing whether the accounting policies and presentation have beenconsistently applied, unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Standards on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. Ernst & Young LLPAberdeen7 September 2007 This information is provided by RNS The company news service from the London Stock Exchange