Faroe to Publish Full, Current Asset Data

The board of UK-listed upstream minnow Faroe said December 27 that it would publish full and current data of its assets, in response to a challenge from DNO earlier that day. Faroe is fighting off a hostile bid from DNO, which, it says, undervalues the company.

DNO had posed a number of questions to Faroe, including the status of the Brasse East well in Norway. The exploration well is, according to the Norwegian Petroleum Directorate, completed; but no flow data has been published, says DNO, generating questions about drilling outcomes at part of the "fundamental" Brasse project. It did however comment on a disappointment with the Cassidy well that day. Faroe has hired Gaffney, Cline & Associates to carry out the audit which will include that well, subject to completion of drilling operations.

Faroe has relied on finds and asset swaps since the April bid to show that it undervalues the company today, said DNO; but it cited Faroe's claim that the Equinor asset swap was value neutral, trading short term gain for longer term loss. DNO also said the calculations of value were suspect: the additional cashflow of £96mn for 2019-2020 were based on $65/barrel Brent crude for 2019 and $67.5/barrel in 2020, "significantly above current Brent oil price futures, putting to the test Faroe's value neutrality proposition."

Among other questions that DNO put to the Faroe board was whether its current provision of £56.3mn for UK decommissioning liabilities was sufficient; why the company has provided – based on DNO's calculation – a negative return on invested equity despite "a proven track record of delivering value to all shareholders"; and why, among other setbacks, has first oil from the flagship Brasse field been delayed by two to three years in the past two years.

If DNO does not receive sufficient acceptances by 1300 GMT January 2 to make the bid unconditional, DNO may either drop the hid or extend it until February 10. Faroe on the other hand has until January 20 to announce material new information in relation to the bid, in which case DNO has until January 27 to improve or amend its bid. 

Faroe said that DNO's focus on "recent uncertain oil and equities markets" was misplaced as "Faroe remains fully funded to pursue its near to medium term production growth target of 35,000 barrels of oil/day and its largest ever drilling campaign, while the additional financial flexibility created by the recent Equinor asset swap – adding £96mn of incremental cash flow in the next two years – would allow Faroe to exploit suitable opportunities that might arise from any short term  weakness in the oil price."

Analyst Malcolm Graham-Wood, a staunch supporter of Faroe, said: "With the first closing date for the bid next week Faroe needs to ensure that long term supporters with not sell out these valuable assets and strong management on the cheap."