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Faroe drills in Norwegian waters

Faroe Petroleum has teed up a highly promising drilling programme in Norway for 2015.
March 24, 2015

The market reacted positively to full-year figures from Faroe Petroleum (FPM), despite the North Sea driller swinging to a net loss of £55m, against a profit of £14.1m in the previous year. Revenues were flat, as a 12 per cent increase in production was countered by lower realised oil prices. Faroe also booked a £38.5m impairment charge and £132m in exploration write-offs, though the consequent earnings slump was mitigated by a hefty tax credit.

IC TIP: Buy at 79p

The good news is that Faroe is proceeding with four high-impact wells during 2015, all of which will be located in Norwegian waters where the driller will benefit from a 78 per cent exploration tax rebate. Two of the wells will be follow-up options on last year’s large Pil discovery in the Norwegian Sea. Faroe’s gross exploration and appraisal capital spend for 2015 is estimated at around £100m, but this falls to just £26m post-tax.

Faroe expects to produce 8,000-10,000 barrels of oil equivalent per day (boepd) in 2015, split 58/42 per cent between liquid and gas. The company has softened the impact of falling energy prices by hedging 58 per cent of this year’s output at $89 a barrel for oil and 50p per therm for gas - both rates appreciably higher than current prices.

Peel Hunt gives a risked book value of 123p a share.

FAROE PETROLEUM (FPM)
ORD PRICE:79pMARKET VALUE:£211m
TOUCH:78-79p12-MONTH HIGH: 155pLOW: 58p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:92p*NET CASH:£33m

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201015.0-26.0-13.3nil
201180.014.022.3nil
2012159-29.0-2.4nil
201312910.06.6nil
2014129-166-22.6nil
% change-0.1---

Ex-div: na

Payment: na

*Includes intangible assets of £128m, or 48p a share.