Faroe enters Norwegian oil deal as it faces down takeover
FAROE Petroleum has clinched a deal to boost its oil production in the Norwegian North Sea while battling a hostile takeover bid from its largest shareholder.
The Aberdeen-based producer told shareholders that the asset swap arrangement with Norwegian major Equinor, formerly known as Statoil, would raise its oil production by between 7,000-8,000 barrels of oil a day from next year.
Faroe said the output boost could allow it to return cash to shareholders and push through a sustainable dividend policy.
Graham Stewart, the company’s CEO, told investors that the shareholder sweetener was not designed to see off the bid by top shareholder DNO to take full control of the company.
He added that the deal had been under discussion since before the hostile takeover bid emerged last week.
DNO raised hackles on Faroe’s board with a bid to buy it for 152p a share, valuing the Aim-listed company at £608m – a move dubbed “opportunistic” by Mr Stewart. He advised shareholders to take no action.
DNO already owns 28pc of its smaller rival after a steady campaign of stakebuilding this year.
The Oslo-listed oil giant was forced in April to deny it planned a full takeover offer, triggering City rules that blocked DNO from making an approach for six months.
Faroe’s shares have traded at around 150p a share since August, reaching highs of 170p a share in early October, before falling oil prices dragged its share price down to below 130p last month.
Under the terms of the deal, Faroe will take Equinor’s stakes in the Vilje and Ringhorne East fields, and parts of the state-owned firm’s ownership in the Marulk and Alve fields, in return for its stakes in the Njord field.
Faroe said the deal would help establish an oil production rate of 18,000 to 22,000 barrels a day in 2019, which is almost double the 12,000 barrel daily rate set this year.
“We are now confident in our ability to deliver in excess of 50,000 boepd [barrels of oil equivalent] in the medium term,” Mr Stewart said.
“This will enable us to give careful consideration to a potential return of capital to our shareholders, as an additional element in our capital deployment mix,” he added.
In a statement, DNO said that although the “significant deal” may not have been designed to halt its takeover plans, it would require pause for thought.