Faroe Petroleum Plc Regulatory News (FPM)

14 July 2016

THIS ANNOUNCEMENT (INCLUDING THE APPENDICES) AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, JERSEY, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

Faroe Petroleum plc

("Faroe", "Faroe Petroleum", the "Company")

Proposed Acquisition, Placing and Publication of Q1 Financial Information and CPR

Faroe, the independent oil and gas company focusing principally on exploration, appraisal, development and production opportunities in Norway and the UK, is pleased to announce that it has conditionally agreed to acquire a package of interests in producing Norwegian oil & gas assets from DONG E&P Norge AS ("DONG"). A total consideration of US$70.2 million has been agreed with the vendor and, subject to the satisfaction of certain conditions, it is expected that the completion of the Acquisition will occur by the end of 2016.

The Company also announces its intention to conduct a placing with certain institutional investors and the directors of the Company (the "Placing") to raise gross proceeds of approximately £60.8 million in order to fund the Acquisition and to accelerate Faroe's recent Brasse discovery towards development sanction. The Placing is being conducted through an accelerated bookbuilding process which will be launched immediately following this announcement.

Stifel, RBC and Pareto have been appointed as Joint Bookrunners in respect of the Placing.

Highlights:

· The Company is raising approximately £60.8 million (US$80.0 million) for the purpose of funding the acquisition of the DONG Assets

· The Acquisition comprises:

o Five Norwegian North Sea producing oil and gas fields: the Ula field (20 per cent. working interest); two tie-back fields to Ula, namely: Tambar (45 per cent. working interest) and Tambar East Unit (37.8 per cent. working interest); Oselvar (55 per cent. working interest); and the Trym gas field (50 per cent. working interest)

o LR Senergy estimates that the Acquisition will add 2P reserves of 19.8 mmboe

o The Company estimates the acquisition will provide an additional 8,000 boepd of production in 2016 and to increase the Group's aggregate average production to between 15,000 and 17,000 boepd for the year to 31 December 2016 (approximately 60 per cent. liquids and 40 per cent. gas)

o Estimated 2015 unit opex of $19/boe for the DONG Assets

o Acquisition funded through equity to maintain balance sheet strength and flexibility

· The Directors believe that the Acquisition represents a significant value-enhancing acquisition opportunity for Faroe and its Shareholders

o Acquisition equates to a per boe acquisition price of US$3.5/boe based on 2P reserves estimated by LR Senergy, US$2.3/boe based on 2P reserves and 2C resources estimated by LR Senergy, and US$7,033 per flowing barrel, based on the DONG Assets' production between 1 January and 30 April 2016

· A total consideration of US$70.2 million has been agreed with DONG and, subject to the satisfaction of certain conditions, it is expected that the completion of the Acquisition will occur by the end of 2016

· The Acquisition has an effective date of 1 January 2016 and the headline consideration is to be reduced by working capital adjustments since the effective date of 1 January 2016, payable in cash on completion, which is expected to occur in December 2016

· The Acquisition is subject to a number of conditions including certain pre-emption rights not being exercised. In the event that all or part of the Acquisition does not complete, the Company intends to use the unutilised Net Proceeds to fund similar acquisitions.

· The Placing will also allow Faroe to progress its recent Brasse discovery towards development sanction

 Graham Stewart, Chief Executive of Faroe Petroleum, commented:

"We are delighted to announce the acquisition of these high-quality assets in the Norwegian North Sea. The acquisition of these producing fields creates a new strategic hub for Faroe, centered around the Ula platform, in one of our core areas offshore Norway. As well as the strategic nature of this deal, the acquired assets will have a material impact on production, reserves, cash flow and debt capacity.

"We have reviewed a significant amount of opportunities in the lead up to this, and as a pre-qualified operator in Norway, this portfolio of assets provides the most strategic sense for us, delivering synergies and upside potential from our existing portfolio.

"The proposed placing also announced today will ensure we continue to take advantage of the growth potential within the portfolio in the most capital efficient manner; taking advantage of exploration opportunities and progressing our development projects while maintaining balance sheet strength and flexibility; delivering our goal of becoming a self-sustaining full cycle E&P company."

-Ends-

For further information please contact:

The Market Abuse Regulation ("MAR") became effective from 3 July 2016. Market soundings, as defined in MAR, were taken in respect of the Placing with the result that certain persons became aware of inside information, as permitted by MAR. That inside information is set out in this announcement and has been disclosed as soon as possible in accordance with paragraph 7 of article 17 of MAR. Therefore, those persons that received inside information in a market sounding are no longer in possession of inside information relating to the Company and its securities.

Andrew Roberts, Group Exploration Manager of Faroe Petroleum and a Geophysicist (BSc. Joint Honours in Physics and Chemistry from Manchester University), who has been involved in the energy industry for more than 30 years, has read and approved the information contained within this regulatory announcement.

Estimates of reserves and resources contained in this announcement were prepared in accordance with the Petroleum Resource Management System guidelines endorsed by the Society of Petroleum Engineers, World Petroleum Congress, American Association of Petroleum Geologists and Society of Petroleum Evaluation Engineers.

APPENDIX 1: Unaudited Historical Financial Information

APPENDIX 2: Terms and Conditions of the Placing

APPENDIX 3: Key Risk Factors

APPENDIX 4: Definitions and Glossary

Proposed Acquisition of Norwegian Licence Interests from DONG, Proposed Placing and Publication of Q1 Financial Information and CPR

1. Introduction

The Company intends to raise approximately £60.8 million for the purpose of funding the acquisition of the DONG Assets and to accelerate Faroe's recent Brasse discovery towards development sanction.

A total consideration of US$70.2 million has been agreed with the vendor and, subject to the satisfaction of certain conditions, it is expected that the completion of the Acquisition will occur by the end of 2016.

The Company has also today published a Competent Person's Report on its existing assets, which is available at http://www.fp.fo/investors/aim-rule-26/.

2. Background to and reasons for the Placing and Acquisition

Faroe has reviewed a significant number of potential acquisitions of North Sea oil and gas assets from major oil companies, independents and utilities. As a pre-qualified operator in Norway, with the technical and management capabilities to operate producing and post-production assets, Faroe is one of a limited number of potential acquirors of operated Norwegian production assets.

The Company has maintained a relatively strong balance sheet with low levels of gearing, which makes it relatively well positioned to execute on its stated strategy of taking advantage of the downturn in oil prices to source and execute value enhancing acquisitions. The Placing permits the Acquisition to occur whilst maintaining a strong balance sheet.

The Directors believe that there are significant advantages to growing the Company's production base, including economies of scale and the generation of more cash to fund the Company's development and production activities. The Directors also expect the Company's ability to borrow to increase with greater scale.

The Acquisition

The DONG Assets are five Norwegian North Sea producing oil and gas fields: the Ula field (20 per cent. working interest); two tie-back fields to Ula, namely: Tambar (45 per cent. working interest) and Tambar East Unit (37.8 per cent. working interest); Oselvar (55 per cent. working interest); and the Trym gas field (50 per cent. working interest). LR Senergy estimates that the DONG Assets will add 2P reserves of 19.8 mmboe and the Company estimates an additional 8,000 boepd of production in 2016.

The Acquisition has an effective date of 1 January 2016 and headline consideration is US$70.2 million (to be reduced by working capital adjustments since the effective date of 1 January 2016), payable in cash on completion, which is expected to occur in December 2016.

Value

The Directors believe that the Acquisition represents a significant value-enhancing acquisition opportunity for Faroe and its Shareholders.

The consideration for the Acquisition equates to a per boe acquisition price of US$3.5/boe based on 2P reserves estimated by LR Senergy, US$2.3/boe based on 2P reserves and 2C resources estimated by LR Senergy, and US$7,033 per flowing barrel, based on the DONG Assets' production between 1 January and 30 April 2016. The Directors believe this represents good value for producing assets, particularly because of the upside potential that management believes remains within the assets.

The Acquisition is subject to a number of conditions including certain pre-emption rights not being exercised. In the event that all or part of the Acquisition does not complete, the Company intends to use the unutilised Net Proceeds to fund similar acquisitions.

Operating costs

The DONG Assets have relatively low operating costs, (approximately US$19 per boe in 2015), and this lower cost production is expected to bring Faroe's average operating costs down to approximately US$26 per boe in 2016 from approximately US$30 per boe, if the Company did not complete the Acquisition.

Strategic benefits

Additionally, the Ula Hub Assets share the same infrastructure, via the Ula platform, as Faroe's existing producing Blane field (Faroe 30.5 per cent. working interest) and potentially the Butch development project (Faroe 15 per cent. working interest), which is expected to be developed via a subsea tie-back to the Ula platform. There is therefore scope for further operating and cost synergies and thus enhanced asset value.

The Acquisition includes approximately US$109 million of tax balances, with a tax value of US$84 million, which are expected to offset the Group's profits resulting from the DONG Assets' Norwegian production.

Norwegian production also increases the tax efficiency of the Group's development and decommissioning activities in Norway, as these can be offset against tax payable from production profits. In addition, there is uplift available to further shelter development capital expenditure, available only to companies in a tax-paying position in Norway.

3. Background on Faroe

Faroe is an independent oil and gas company focusing on exploration, appraisal and production opportunities principally in Norway and the United Kingdom. Through successive licence round applications, acquisitions and asset swap transactions, the Group has built a substantial, diversified offshore portfolio of exploration, appraisal, development and production assets across the UK waters and Norwegian North Sea, Norwegian Sea, Barents Sea and offshore Ireland, encompassing 59 licences covering 46 assets.

Faroe currently has interests in six principal oil and gas production fields in the UK and Norway, including interests in the UK/Norway median line Blane oil field in the Northern North Sea; the Schooner and Ketch gas fields in the UK Southern North Sea; the East Foinaven field in the UK Atlantic Margin; and the Ringhorne East and Brage fields in Norwegian waters. The UK Minke and Wissey fields have ceased production but have continuing abandonment liabilities and the Enoch, Jotun, Orca and Topaz fields have zero or nominal production. The Group's production fields (including the currently suspended Njord and Hyme fields) collectively produced on average 10,530 boepd (economic production net to Faroe) in 2015.

The Company also has a 7.5 per cent. interest in the Njord and Hyme fields, both of which were producing fields until the beginning of June 2016. Production from these fields has been suspended as part of a wider redevelopment of the Greater Njord Area called the Njord Future Project. The Njord Future Project, which is expected to be complete in 2020, is expected to extend the production life of the Njord and Hyme assets and provide a hub for existing and future development assets in the area.

In addition, the Group has interests in a number of pre-development assets in Norwegian oil discoveries, Butch (15 per cent.), the combined Pil, Bue and Boomerang fields (25 per cent.) and Snilehorn (7.5 per cent.). The 2P reserves and 2C resources attributed by LR Senergy to these three pre-development fields in combination is 35.0 mmboe and 7.8 mmboe respectively, net to Faroe.

The Group's exploration drilling programme has over recent years achieved many successes, including Glenlivet (gas, UK West of Shetlands); Fogelberg (gas, Norway) and Maria (oil, Norway) in 2010; Butch (oil, Norway) in 2011; Snilehorn (oil, Norway) in 2013; the Pil discovery (oil and gas, Norway) and Bue (oil, Norway) in 2014; Boomerang (oil, Norway) in 2015; and Brasse (oil and gas, Norway) in 2016.

Faroe has built a substantial business over many years. Faroe pursues a portfolio exploration model which seeks to mitigate exploration risk and increase the probability of success by drilling several high impact exploration and appraisal wells every year, whilst focusing on optimal monetisation strategies tailored for each successful discovery. Faroe has also built a production portfolio to generate tax efficient cash flow in order to support its exploration and appraisal programme. The Group has generated, and the Directors believe it can continue to generate, many new, exciting and potentially high value opportunities focusing on exploration, appraisal pre-development and production enhancement. The Group aims to continue its programme of monetising its discoveries through a combination of trading, selling and selectively participating in their development, as well as making selective production acquisitions, such as the proposed Acquisition of the DONG Assets, aimed collectively at creating significant shareholder value.

Specifically, the coming period is expected to see several successful discoveries being progressed towards development sanction resolutions. Faroe's management therefore anticipates a number of significant investment decisions to be made in the near term. In the next 24 months, Faroe has committed to drill two exploration wells and expects to participate in approximately three further exploration wells, advance Butch, the Njord Future Project, Pil/Bue/Boomerang and the recent Brasse discovery towards monetisation, whether by way of development, sale or swap, and a number of production enhancement operations on existing assets. The Group will continue to consider further potential production acquisitions.

Current Trading and Prospects and Developments since 1 January 2016

Group production averaged approximately 9,500 boepd in the five month period from 1 January 2016 to 31 May 2016 (the latest practicable date prior to publication of this announcement). The average operating cost for the same period was approximately US$27/boe, reflecting higher throughput, despite the strength of the Norwegian Krone and lower costs in general.

The Directors currently anticipate that the average daily economic production for the Group's fields will be in the range of 7,000 to 9,000 boepd for the year to 31 December 2016. The range excludes the contribution of production from the Acquisition which is expected to increase the Group's aggregate average production to between 15,000 and 17,000 boepd for the year to 31 December 2016 (approximately 60 per cent. liquids and 40 per cent. gas). The Company is expecting 2016 full year operating costs to be reduced from around US$30/boe to US$26/boe, reflecting anticipated lower production volumes in the second half, following suspension of production (but continued opex) from the Njord and Hyme fields which occurred in June 2016 and the effects of the Acquisition. The Directors expect the cost of the Group's 2016 pre-tax exploration and appraisal programme to be approximately £65 million (£16 million post-tax), with the inclusion of the Dazzler exploration well in 2016. Total expected development and production capital expenditure is approximately £28 million for 2016 including expenditure on the DONG Assets.

On 24 February 2016, the Company announced that the Kvalross exploration well in the Barents Sea, Norway had been completed significantly under budget. No commercial discovery was made.

On 16 June 2016 Faroe announced that it had made an oil and gas discovery in the Faroe-operated Brasse exploration well in licence PL740 (Faroe 50 per cent.) in the Norwegian North Sea and that Faroe was planning to drill a sidetrack to confirm the reservoir distribution and hydrocarbon contacts.

On 11 July 2016 Faroe announced the results of the Brasse side-track well. The Brasse side-track well encountered a 25 metre gross oil column and a 6 metre gross gas column. Results based on extensive coring, wireline logging and sampling show that the well encountered oil and gas in good quality Jurassic reservoir sandstones, similar to those seen in the main well, and provided important information about the reservoir distribution in Brasse. The hydrocarbon-bearing interval in the side-track well was found to be at a similar pressure level to the hydrocarbon-bearing interval in the initial discovery well. Total gross volumes of recoverable hydrocarbons are estimated to be 28-54 mmbbls of oil and 89-158 bcf of gas (43-80 mmboe in aggregate).

Exploration Drilling Programme - Near term

Firm Drilling Programme

Expected Drilling Programme

Possible Drilling Programme

Reserves and Resources

Since 2009, Faroe has increased its 2P reserves 30 fold to 60.6 mmboe as at 1 January 2016.

A Competent Person's Report on the Group's assets has been prepared by LR Senergy, an independent consultancy specialising in reservoir engineering, geology, geophysics and petroleum economics. The tables below sets forth reserve, resource and economic information regarding the Group's oil and gas assets as at 1 January 2016 extracted without adjustment from the Competent Person's Report and in accordance with PRMS (unless otherwise stated).

Reserves: Fields in Production & Under Development

Contingent Resources: Un-developed Discoveries

Prospective Resources: Exploration Portfolio

4. Principal terms of the Placing

The Company is proposing to raise approximately £60.8 million (before expenses) through the issue of the Placing Shares.

The Placing is conditional, inter alia, upon:

a) the Placing Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms; and

b) Admission becoming effective by not later than 8.00 a.m. on 19 July 2016 (or such later time and/or date as the parties to the Placing Agreement may agree but in any event no later than 31 July 2016).

The Placing Shares will be issued fully paid and will rank pari passu in all respects with the Existing Shares, including the right to receive dividends or distributions made, paid or declared after the date of Admission. Application has been made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will occur, and that dealings in the Placing Shares, fully paid, will commence on AIM at 8.00 a.m. on 19 July 2016. The Existing Shares are in registered form and can be held in certificated or uncertificated form via CREST and the same will apply to the Placing Shares.

At Admission, the Placing Shares are expected to represent approximately one third of the Company's Enlarged Issued Share Capital. Shareholders who do not participate in the Placing are expected to suffer an immediate dilution of approximately one third to their interests in the Company as a result of the issue of the Placing Shares pursuant to the Placing.

5. Open Offer

In order to allow all Shareholders an opportunity to subscribe for Ordinary Shares at the Placing Price, the Company intends to make an Open Offer to all qualifying Shareholders (excluding those in the US or Restricted Territories) shortly following Admission, to raise up to €5,000,000 through the offer for subscription of Ordinary Shares at the Placing Price. Any proceeds from the Open Offer will be used for general working capital purposes. It is not expected that the Open Offer will be underwritten. The Open Offer will be subject to Shareholder approval.

6. Directors' intentions

The Directors are fully supportive of the Placing and consider it to be in the best interests of the Company and the Shareholders as a whole. The Directors (and their immediate families) have undertaken to subscribe for approximately 0.3 million Placing Shares in aggregate.

7. The Acquisition

Introduction

The DONG Assets are located in the southern Norwegian North Sea and comprise a mix of oil and gas production totalling 10,768 boepd on average in 2015, equal to approximately 114 per cent. of Faroe's 2015 average production. Faroe will take over operatorship of two of the fields Oselvar and Trym, while BP will remain as operator of the Ula, Tambar and Tambar East fields. With an estimated unit opex of US$19/boe for 2015, the assets were cash flow positive, generating an operating profit of US$25.0 million of gross profit in 2015. The Acquisition includes tax balances of US$109 million which have an estimated tax value of approximately US$84 million (undiscounted).

* LR Senergy CPR, July 2016

Assets

Ula

The Ula field (20 per cent. working interest) is operated by BP (80 per cent. working interest) and has 8.3 mmboe of reserves (net to Faroe). In 2015 the field produced approximately 1,713 boepd (net) and in the first four months of 2016 produced approximately 2,200 boepd (net to Faroe). The field has seven producing wells and five water and gas injection wells in operation. The operator has employed an alternating water and gas injection (WAG) technique in certain reservoir units to enhance oil recovery and conventional oil production in the crestal areas of the field. As part of this strategy, all gas production from Ula, Tambar, Oselvar and Blane is injected into the Ula reservoir.

The field facilities consist of three bridge-linked steel jacket platforms with processing, drilling and living quarter facilities. Oil is exported via the Ula Transport System to the Ekofisk field and then to shore through the Norpipe oil export pipeline to Teesside in the UK.

This infrastructure acts as the local hub, with production from Tambar and Tambar East, Oselvar and the Blane field (Faroe 30.5 per cent. working interest) all feeding into it. The Ula hub is also likely to act as the production hub for the Butch development (Faroe 15 per cent. working interest). Other discoveries have been made in the area, which could also be tied back to Ula in the future.

The operator has a long-term plan for the asset intended to optimise value and recovery of hydrocarbons from the field. Additional associated gas sourced from future projects such as the Butch field development and those on the Tambar field should allow an increase in gas injection into the Ula field to deliver incremental resources. Several infill targets have been identified in the Ula field, which can be matured to project execution in both the main Jurassic reservoir and the deeper Triassic formation. Faroe considers the Triassic reservoir to be underexploited, with only one well drilled to date. The combination of new satellite projects, infill drilling and increased gas injection could contribute to a reduction in opex.

Currently the field is expected to cease production at the end of 2031, although this is sensitive to the oil price, and production volumes from the field and other users of the processing capacity.

On 10 June 2016, Det norske oljeselskap ASA announced that they had agreed terms for a merger with BP's Norwegian subsidiary to form a new company, Aker BP. The transaction is subject to shareholder and Norwegian Authorities' approval, and is expected to complete towards the end of 2016. Aker BP will become the operator for the Ula and Tambar fields. The transaction is expected to result in increased development activity for the Ula and Tambar fields.

Tambar and Tambar East

The Tambar (45 per cent. working interest) and Tambar East Unit (37.8 per cent. working interest) fields are satellite fields, approximately 16 kilometres to the south east of the Ula field. The fields are operated by BP (55 per cent. working interest) and have 6.4 mmboe of reserves (net to Faroe). The fields commenced production in 2001 and in 2015 they produced approximately 2,385 boepd (net), with oil accounting for approximately 85 per cent. of production and gas 15 per cent. Production for the first four months of 2016 was approximately 2,593 boepd (net to Faroe).

Tambar is developed with an unmanned wellhead platform tied back to the Ula platform, with three wells in the Tambar reservoir and one well in Tambar East. Tambar East has a slightly lower working interest of 37.8 per cent. due to the field extending into the adjacent licence. The two fields are however operated as one with the majority of the developed reserves found in the Tambar field itself. Field opex is less than US$15 per boe (including tariffs paid to Ula).

The Tambar field has outperformed initial expectations with current reserve estimates exceeding the approved plan for development and operation by approximately 50 per cent. Currently production is by natural depletion, however as the water cut rises, it will be necessary to install gas lift in the wells. The operator has well advanced plans to execute this modification (known as the Tambar Artificial Lift project) in the next two years, which is anticipated to extend production from the existing wells.

The operator has identified and matured two infill wells for the Tambar field, and it is expected that at least one of these will be drilled in the next two years, with the aim of increasing production. A number of additional opportunities are also under evaluation, including water injection and a further infill well in the Tambar East field.

Aker BP will become the operator for the Tambar field following completion of the proposed merger of Det norske oljeselskap ASA with BP Norway.

Oselvar

The Oselvar field (55 per cent. working interest) is a satellite field, located 23 kilometres to the south east of the Ula production hub on the Norway/ UK border. Faroe will be operator of the field on completion of the Acquisition. Net production in 2015 averaged 1,595 boepd and was a mix of oil (64 per cent.) and gas (36 per cent.). Production is evacuated through a sub-sea tie-back to Ula, where gas from Oselvar is sold to the Ula partners to be injected into the Ula field as part of the Ula WAG production strategy. Production for the first four months of 2016 was approximately 1,215 boepd (net to Faroe).

The field has 1.3 mmboe of remaining reserves, having started production in April 2012. The field has experienced a more rapid decline than pre-development plans suggested and it is expected that the field will cease production in 2018; a decommissioning plan was submitted to the Norwegian authorities in June 2016 by the current operator, DONG. Decommissioning is not extensive and relates to three wells and the sub-sea pipelines and control systems connecting the field to the Ula platform. Total net abandonment expenditure is expected to be US$13.1 million (post tax). Timing of the abandonment project will be optimised together with other Faroe activities.

Additionally, it is expected that parts of the Oselvar facilities will be reused for the Butch Development operated by Centrica Resources (Norge) AS (Faroe, 15 per cent.). Once an investment decision is taken by the Butch joint venture, it is expected that a compensation payment would be made by the Butch partners to the Oselvar partners, making a material contribution towards decommissioning costs. There is potential to reduce the decommissioning costs and recover further value through sale and/or reuse of subsea equipment. Faroe will also consider subsurface potential for future recommencement of production from Oselvar wells.

Trym

The Trym field (50 per cent. working interest) is located in the southern Norwegian North Sea, close to the border with Denmark. The field will be operated by Faroe on completion of the Acquisition. Trym produces gas and condensate from two production wells, via a subsea tie-back to the Harald facilities in the Danish North Sea and has 3.8 mmboe of reserves (net to Faroe). Gas is exported to Denmark via the Danish Underground Consortium (DUC) infrastructure system, which includes the Tyra platforms, which have been affected by subsidence. Condensate is exported to the Fredericia terminal in Denmark via the Tyra and Gorm facilities. 2015 production was 6,301 boepd net to the operator. Production for the first four months of 2016 was approximately 4,064 boepd (net to Faroe). The lower level of production in 2016 is due to available capacity in the transportation infrastructure and decline in reservoir pressure.

It was announced in April 2016, by Maersk Olie og Gas A/S, the operator of the Harald facilities through which Trym is produced, that it will cease production of oil and gas from the two main facilities, Tyra East and Tyra West, in the Tyra field in October 2018, if an economically viable solution to Tyra's subsidence issues is not identified. After shutdown of Tyra, Harald would no longer be able to receive the wellstreams from Trym and therefore an alternative evacuation route would be required or production will cease. Faroe's acquisition case and reserves assessment assumes cessation of production in 2018.

It is not clear whether the Tyra platforms will be shut down in 2018, as this is a central piece of Danish upstream infrastructure responsible for delivering most of Denmark's offshore gas production to shore. It is understood that the owners of the field are considering replacement or modification of the Tyra platform, which would ultimately allow Trym to continue in production.

Other than a continuation of production beyond 2018, there is further upside potential from the lowering of the inlet pressure to the Harald facilities that would allow for extended production and higher reserves.

Reserves and Resources

A Competent Person's Report on the DONG Assets has been prepared by LR Senergy, an independent consultancy specialising in reservoir engineering, geology, geophysics and petroleum economics. The tables below sets forth reserve, resource and economic information regarding the DONG Assets as at 1 January 2016 extracted without adjustment from the Competent Person's Report and in accordance with PRMS (unless otherwise stated).

Developed and Undeveloped Reserves

Contingent Resources

Historic Production Data for the DONG Assets

*Includes oil, natural gas liquids and condensate

Abandonment/Decommissioning Liabilities

The abandonment liabilities associated with the DONG Assets are to be transferred to Faroe which has agreed to establish a decommissioning provision fund to be owned and operated by Faroe and consisting of both cash and investment securities. The fund will maintain a minimum cash amount of US$10 million until the liabilities have been discharged or until the residual liabilities fall below that level.

Unaudited Historical Financial Information on the DONG Assets

As Faroe is acquiring assets which form only part of DONG's business, separate historic financial information for the acquired assets is not available. The unaudited historical financial information of the DONG Assets, comprising an unaudited historical income statement for the three years ended 31 December 2015 and an unaudited statement of net assets as at 31 March 2016, has been prepared for illustrative purposes only in order to provide a description of the historical performance of the assets being acquired.

UNAUDITED HISTORICAL INCOME STATEMENT OF THE DONG ASSETS FOR THE THREE YEARS ENDED 31 DECEMBER 2015

UNAUDITED HISTORICAL STATEMENT OF NET ASSETS FOR THE DONG ASSETS AS AT 31 MARCH 2016

The historic financial information on the Dong Assets, presented in this Announcement, has been compiled using a set of assumptions and data as follows:

Production

Production figures have been taken from the website of the Norwegian Petroleum Directorate (www.npd.no) which reports production by field and product based on operator reports.

Revenue

Revenue has been calculated by multiplying production volumes with average commodity sales prices achieved by Faroe in the respective periods. The Directors believe that this is a reasonable assumption given that Faroe sells its commodities to the same markets as DONG. Particular discounts have been applied to products where such are known. Faroe's working interest in each of the respective licences has then been applied to the gross revenue figure to arrive at the net revenue attributable to Faroe.

Tariff income, included in revenue, is based on operators' joint venture billings.

Cost of sales

Operating costs are based on operators' joint venture billings. Tariffs are based on operators' joint venture billings where these are included. On fields where the operators' joint venture billings do not include tariffs, these have been calculated with reference to the tariff agreements made available to Faroe.

Depreciation, depletion and amortisation ('DDA') has been calculated by multiplying production with assumed DDA rates for unit of production. The assumed DDA rate has been calculated with reference to published accounts of the vendor.

Administrative Expenses

Administrative expenses have been derived based on the average administrative expenses from the DONG audited accounted for the years 2012 through to 2014. The total expense has then been apportioned for the proportion of DONG's production being acquired.

Foreign exchange

Where appropriate, foreign exchange rates have been used to convert the historic financial information to GBP using the annual average rates in the published accounts of Faroe.

Taxation

The tax charge has been calculated as 78 per cent. of the pre-tax profit, in line with the tax rate payable by Norwegian petroleum companies.

Property, plant and equipment: development and production

The acquired development and production assets were recognised at fair value, which has been calculated using a discounted cash flow model, based on the assumptions detailed above and using a discount rate of 10 per cent., in line with common market practice. The acquired balance also includes £12 million, which relates to the decommissioning asset which was recognised, net of tax (see provisions below).

Deferred tax assets

The deferred tax asset mainly relates to the decommissioning asset which was recognised on acquisition net of tax, using the Norwegian rate of 78 per cent. Furthermore, the tax balances attributable to each asset were in excess of the fair value and hence no offsetting deferred tax liability was recognised. Finally, a deferred tax asset was recognised in respect of the uplift balance which is a Norwegian tax allowance against the special tax rate of 53 per cent. The tax balances were obtained directly from DONG.

Provisions

The provisions balance relates to the decommissioning liability recognised on acquisition of the DONG Assets. Gross cost decommissioning estimates and life of field information (reserves, production profiles and COP dates etc) were obtained directly from DONG. This information was input into Faroe's decommissioning model to calculate an accounting provision. A decommissioning asset, net of Norwegian tax, was also recognised.

Principal Terms and Conditions of the Acquisition

Under the Acquisition Agreements, DONG has agreed to assign to Faroe Petroleum Norge AS ("FPN") the DONG Assets, being its participating interests in (a) PL 019 and (b) PL 065, PL 300, PL 274, PL 274CS and PL 147 on the Norwegian Continental Shelf with economic effect from 1 January 2016 ("Effective Date"). FPN is entitled to all income attributable to the DONG Assets with effect from the Effective Date, and has agreed to indemnify DONG against all liabilities related to the DONG Assets on or after the Effective Date. The DONG Assets are assigned together with the remaining tax balance for each of the licences as of the Effective Date.

The aggregate consideration under both Acquisition Agreements is US$70.2 million (to be reduced by working capital adjustments since the Effective Date). FPN has paid to DONG a deposit equal to five per cent. of the consideration under both of the Acquisition Agreements as security for fulfilment of its obligations under the agreements.

Completion of both Acquisition Agreements is subject to customary conditions precedent, including the assignment to FPN of certain contracts that are material to the DONG Assets (which will be subject to third party consent) and consents from the Norwegian MPE and the Ministry of Finance. The Acquisition Agreement for PL 019 is, in addition, conditional on no pre-emption right being exercised by the other licensee of PL 019. The Acquisition Agreement for PL 065, PL 300, PL 274, PL 274CS and PL 147 is conditional on no pre-emption right being exercised by the Norwegian Government. There are no pre- emption rights for the other licensees in PL 065, PL 300, PL 274, PL 274CS and PL 147, and no pre- emption right for the Norwegian Government in PL 019. FPN has the right to terminate the Acquisition Agreement for PL 019 if the Acquisition Agreement for PL 065, PL 300, PL 274, PL 274CS and PL 147 does not also complete. Completion of both Acquisition Agreements is expected to occur by December 2016.

The Acquisition is subject to a number of conditions including certain pre-emption rights not being exercised. In the event that all or part of the Acquisition does not complete, the Company intends to use the unutilised Net Proceeds to fund similar acquisitions.

Under the Acquisition Agreements, FPN is required to deposit an initial cash amount in a separate bank account (in FPN's name) which shall, together with a segregated investment portfolio of securities, serve as a post-tax decommissioning provision fund. FPN shall make such annual adjustments to the amounts deposited as are needed to ensure that the fund at all times cover the best post-tax ABEX estimate for the DONG Assets.

The Company is a party to the Acquisition Agreements to guarantee all of the obligations of FPN under the agreements.

Financing of the Acquisition

The Group intends to use the Net Proceeds to acquire the DONG Assets for a cash consideration of US$70.2 million. Faroe will also receive the economic benefit of production from the DONG Assets between 1 January 2016 and the completion date of the Acquisition. Although the Company has significant existing cash resources and limited capacity under its Reserve Based Lending Facility, the Company's policy has been, and remains, to maintain low levels of leverage and retain a strong focus on maintaining a healthy balance sheet.

To the extent that some or all of the Acquisition does not complete, the Company expects to use the unutilised portion of the Net Proceeds to fund similar acquisitions.

8. Capital resources and liquidity

Exploration Financing Facility

This facility was entered into by FPN and has an aggregate commitment of NOK 1.5 billion. Utilisations can be made under the facility up until 31 December 2016 and the facility expires on 31 December 2017. As at 30 June 2016 (being the latest practicable date prior to the publication of this Announcement) there was NOK 665 million drawn down under the facility (31 December 2015: NOK 425 million). The facility is secured against the annual Norwegian tax rebate under which 78 per cent. of all allowable expenditure is repaid to the claimant (together with interest thereon) 12 months after the end of the tax year.

Reserve Based Lending Facility

This facility was entered into by both FPUK and FPN. The facility has an aggregate amount of US$200 million and will amortise over the life of the borrowing base assets. As at 30 June 2016 (being the latest practicable date prior to the publication of this Announcement), FPUK had drawn down an amount of £23 million under the facility (31 December 2015: 23 million drawn down).

9. Capitalisation and indebtedness

Capitalisation

The following table sets out the Group's capitalisation as at 31 March 2016.

* Other reserves consist of the cumulative translation reserve and exclude retained earnings in accordance with ESMA recommendations for the consistent implementation of the Commission Regulation (EC) No. 809/2004 implementing the Prospectus Directive.

There has been no material change in the capitalisation of the Group since 31 March 2016.

Indebtedness

The following table sets out the Group's unaudited indebtedness as at 31 May 2016.

* Of the total secured debt, £50.0 million relates to the Group's tax receivable of £54.6 million, against which it is secured. The tax receivable, which exceeds the debt, is excluded from the indebtedness table.

The following table sets out the Group's unaudited net indebtedness as at 31 May 2016.

 *Of the Norwegian tax receivable of £37.7 million is due to be paid by the Norwegian Government in November 2016 with the remaining balance due to be paid in November 2017. £50.0 million of the Group's debt is secured against the tax receivable and is repaid upon receipt of the tax rebate.

As at 31 May 2016, the Group had no indirect or contingent indebtedness.

There has been no material change in the indebtedness of the Group since 31 May 2016.

10. Expected Timetable

APPENDIX 1

UNAUDITED HISTORICAL FINANCIAL INFORMATION

Unaudited Accounts for Faroe Petroleum plc for three months to 31 March 2016