DNO Makes Formal Offer for Faroe

Norwegian producer, DNO, has made an all-cash offer for the outstanding shares of Faroe Petroleum of £1.52 ($1.90.5)/share, the price it originally offered and which Faroe said at the time undervalued the company on every applicable metric.

DNO's CEO Bijan Mossavar-Rahmani said December 12, however, that it was a "rare opportunity" for shareholders to exit their illiquid positions at an attractive price in a volatile and uncertain market for oil and equities," and added that it was a 44.8% premium on the April 3 share price - before speculation about a possible DNO takeover boosted it. He said: "Faroe has failed to deliver consistent shareholder returns over the last 15 years in part as a consequence of dilutive share issues, dilutive options schemes and recent growth-dilutive asset transfers."

Acceptances must be received by 13.00 GMT January 2, unless the acceptance period is extended in accordance with the offer document.

In its background to the offer, DNO quoted a 2003 interview with Faroe CEO Graham Stewart shortly before the initial public offering, in which he talked about exiting via a takeover by one of the majors: "It may be three years, seven years, maybe longer, maybe shorter, but we have to be attractive (to buyers). Otherwise, where's our exit?" he asked.  Now 15 years on, DNO is offering that exit, the would-be buyer said.

Since the offer was first made informally, Faroe has agreed to make a reserves-neutral asset swap with Equinor, allowing it to boost production next year. The fall in oil prices since the autumn, plus the drop in oil equity shares, will have encouraged DNO to hold firm, despite the Faroe board's plea to reject the bid and the relatively modest rise in prices after Opec's announcement regarding cuts from January. 

Analyst Malcolm Graham-Wood said that Faroe has "an impressive list of shareholders to whom they must get the message across. That message is one of being pretty much the best explorer in the sector over the longer term and with a really exceptional asset portfolio in all areas of exploration, appraisal, development and production". 

In April, DNO bought 28.7% of the company for £1.25/share and in August it sought two seats on the board.