DNO Queries Wisdom of Faroe Swap

Norwegian producer DNO said December 5 that the Faroe-Equinor asset swap, announced earlier that day, might not be such good value as Faroe claims.

Faroe is fighting off a hostile takeover from DNO and said that the deal would add to its production in the short term and possibly fund some dividends for its shareholders. It did not mention the DNO takeover bid from last month, however. It has already advised shareholders to reject it.

But DNO said that while it was too early to make a judgement, "we need to ask if this is good value for a company seeking growth: to swap out of its high quality, large scale, core growth hub, Njord, operated by the national oil company of Norway, Equinor, and to take on instead mature and declining production assets –  in a deal with Equinor itself. That is the test this deal needs to satisfy."

Analysts at Cantor Fitzgerald said while the deal was broadly neutral in terms of reserves, with 17.6mn barrels of oil equivalent (boe) and 18.4mn boe of 2P reserves associated with the acquired and divested assets respectively, it did bring immediate output gains of 7,000-8,000 boe/d next year. It also adds interests in two new core areas. Accordingly its initial view is that the deal should prove to be accretive to our valuation, having little impact on the company’s medium term production target of 35,000 boe/d, but adding significant cash flow.