Faroe says new asset valuation puts DNO offer in shade

Faroe Petroleum's assets are worth up to $1bn, according to an independent valuation published on Wednesday.

Faroe, which has received a cash offer from Norwegian oil producer DNO of 152p per share, reported that Gaffney, Cline & Associates had valued the company's oil and gas assets in the range of $879-$1,076m at current oil prices. This would imply a valuation for Faroe of 186-225p per share on a fully diluted basis, adjusting for net cash as at 30 September.

Gaffney, Cline estimated Faroe's proved and probable reserves as at 30 September 2018 to be roughly 102m barrels of oil equivalent.

John Bentley, Faroe's non-executive chairman, pointed out that the valuation represents a 22%-48% premium to DNO's offer price, which the Norwegian firm had urged Faroe shareholders to accept last week.

"GCA's independent valuation clearly supports our view that DNO's offer substantially undervalues Faroe," he said.

In a statement last Thursday, DNO said that if it does not receive sufficient acceptances for its offer to be unconditional, it will choose to either lapse the offer or extend it. If the offer is lapsed, DNO won’t be able to make a new offer for another 12 months.

Also on Wednesday, Faroe reported that an exploration well and an appraisal sidetrack at its Brasse East asset in the northern North Sea, where it has a 50% working interest and is operator, encountered 48 metres of gross Jurassic reservoir with excellent properties, but was found to be water wet. Data acquisition was undertaken including coring and logging.

Analysis of the appraisal well sidetrack indicates the well encountered approximately 40 metres of gross hydrocarbon-bearing Jurassic reservoir.

Further wireline logging is ongoing which will be incorporated into the final well results.

Graham Stewart, chief executive, said: "Although no hydrocarbons were present in the Brasse East prospect we are pleased with the results of the appraisal sidetrack which confirms hydrocarbons within the northern part of the Brasse field, as expected. In addition, the excellent sand quality in the Brasse East Exploration well has reduced the reservoir risk of the Brasse Extension exploration prospect located to the north east of the Brasse field."