Interim Results
(Thomson Reuters ONE) - 24 September 2009 FAROE PETROLEUM PLC ("Faroe Petroleum", "Faroe", the "Company" or the "Group") Unaudited Interim Results for the six months ended 30 June 2009Faroe Petroleum, the independent oil and gas group focused on managedportfolio exploration in the Atlantic Margin, Norway and the NorthSea, announces its unaudited Interim Results for the six months ended30 June 2009.HighlightsActivity* Significant Atlantic Margin gas discovery in Glenlivet exploration well, September 2009* Successful sale of Breagh project, realising £25.5m from investment of £8.8m, completed August 2009* Swap of Trym field development for cash of up to £4m plus interests in Glitne and Enoch producing oil fields - completion expected in Q4 2009* Production from 3 gas fields and 2 oil fields (Glitne and Enoch - post Trym swap), approximately 1,500 boepd* Awarded prestigious Barents Sea licence, in Norway 20th Round (with BG, Statoil and Wintershall) in May 2009 - our 18th licence in Norway* Topaz field development approved in February 2009Financial* Cash of £11.5m (31 December 2008: £16.7m). Cash balance at 28 August 2009 of £37m including Breagh proceeds* Continued access to seven year £25m borrowing base facility, of which £4m drawn* Continued access to approximately £50m revolving credit exploration finance facility for Norway, of which £40m drawn* Turnover of £2.9m (30 June 2008: £0.7m)* Loss of £4.2m (30 June 2008: £0.3m) including write-offs of exploration expenditure* Norway tax receivable of £38.3m (31 December 2008: £30.5m) - of which £29.0m is due in December 2009Strategy* Focused, sustainable and high potential value drilling programme with material equity stakes* Drilling targets from portfolio of over 45 licences, held mainly with major oil companies* Managed use of portfolio and production revenues with treasury and tax optimisation to ensure delivery of an active, high potential value exploration portfolio* Appointments of Iain Lanaghan as Group Finance Director and Tim Read as Senior Independent Non-Executive to strengthen the BoardOutlook* Exciting drilling programme with 9 firm, fully funded wells scheduled over coming two years, including 4 in Norway and 5 in the Atlantic margin, with the Tornado well scheduled to commence soon* Topaz gas field (UK) scheduled to come on stream in Q4 2009* Strong balance sheet providing a solid base for significant programme expansion and growth in portfolio valueGraham Stewart, Chief Executive, commented:"We have had an excellent year to date, with significant explorationsuccess in the Atlantic margin in the Glenlivet discovery andsubsequent appraisal during September, and a number of innovativetransactions including the sale of our stake in the undevelopedBreagh gas field for $41.6m and the swap of our interest in theundeveloped Trym gas field for producing Enoch and Glitne oil fieldinterests and cash, both of which occurred in the second half of theyear."Faroe Petroleum has built an outstanding portfolio of assets,combining high potential exploration and appraisal opportunities witha growing production base. We have a strong balance sheet and afirm, fully funded, nine well programme. The Company has entered avery exciting period in its development, with several high impactwells lined up for drilling and a team confident of deliveringsubstantial value to our shareholders."ENQUIRIES:Faroe Petroleum plcGraham StewartTel: +44 (0)1224 650 920uk(at)faroe-petroleum.comwww.faroe-petroleum.comFinancial DynamicsBilly Clegg/Ed WestroppTel: +44 (0)20 7269 7157Panmure Gordon & CoKatherine Roe/Ashton ClanfieldTel: +44 (0)20 7459 3600Chairman's LetterDear ShareholdersThe first half of the year has been turbulent for the world economyin general and the oil and gas sector in particular. Oil prices wereat a low of $45 per barrel but have increased to a more stable bandof $65-$75 per barrel. Gas prices are still challengingly low.However, some of the change has been beneficial with drilling costsand rig rates coming down.Given the uncertainty over the global economy, it is pleasing toreport on Faroe Petroleum's most successful year to date. InSeptember this year, we delivered our first Atlantic marginexploration discovery with the Glenlivet gas field, and executed anumber of important transactions which put the Company in anexcellent position going forward.The oil industry has suffered from the financial crisis over the past12 months and the threat to funding in the forms of equity and debthas been severe. Against this back-drop Faroe Petroleum has ensuredit is both well financed and continues to invest in its exciting andhigh potential value exploration and appraisal portfolio. This hasbeen possible because of Faroe's good management and prudent approachto financing projects, which includes farming out to third partiesthe bulk of costs of expensive wells, combined with leveraging theNorwegian State tax rebate, from which we benefit significantly inour exploration activity in Norway.We have also minimised the effects of falling commodity pricesthrough a prudent hedging programme. I am pleased to say that ourdrilling plans have not been significantly affected by the globalfinancial crisis, as our much larger partners continue steadfastlywith their commitments to drill on schedule. This is testimony tothe significance of the many prospects we share in our drillingprogramme with major oil companies. We would also expect to benefitgoing forward from lower rig rates and a resultant lower cost ofwells.As part of our management action during the economic downturn wedecided to reduce capital expenditure wherever practical, and tookthe decision to sell down development assets. As a consequence ofthis decision, we were successful in two commercial transactionsannounced during 2009: the sale of our undeveloped Breagh gas fieldto RWE for approximately £25.5 million which completed in August; andthe swap with DONG, due to complete in the 2nd half of the year, ofour undeveloped Trym gas asset for a combination of cash and oilproduction interests in the Enoch and Glitne fields in Norway. Thesetransactions have achieved the plan of reducing development capitalexpenditure and realising a substantial gain in order to ensure thatFaroe Petroleum is well financed to continue its active explorationprogramme.During the period Iain Lanaghan joined the Board as Group FinanceDirector and Tim Read became our Senior Independent Non-ExecutiveDirector. Both Iain and Tim have excellent finance backgrounds, Iainwith FTSE250 and energy sector experience, and Tim with naturalresource as well as investment banking experience. We are alsoconducting a review on corporate governance with the aim to achievebest practice. These initiatives will further strengthen theworkings of the Board going forward.With a fully funded, firm, nine well exploration drilling programmeand many new and attractive exploration and production opportunitiesunder consideration, we are very excited about the period ahead, aswe continue to push forward our growth plans, with the confidencethat we will deliver substantial value to shareholders.John BentleyChairmanChief Executive's ReviewI am pleased to announce the unaudited Interim Results for the sixmonths ended 30 June 2009. The Company's portfolio has borneconsiderable fruit this year, our most successful year to date.Particularly notable successes are our recent significant explorationdiscovery with the Glenlivet well in the UK west of Shetlands area,and the successful disposals of both the Breagh and Trym undevelopedgas fields. We have built a focused, risk diversified portfolio ofover 45 licences spanning the Faroe Islands, west of Shetlands,Norway and the UK North Sea. Faroe Petroleum's proven ability todeliver drilling success, realise value through asset sales, andcontinue to partner with the world's most successful oil and gasexplorers, in prized licences, should give confidence to ourshareholders that we have built a strong and exciting business andthat we have the resources to deliver significant value.Faroe Petroleum remains financially strong with cash resources ofover £37 million at the end of August following the Breagh sale.Further cash will be realised on completion of the announced Trymswap with DONG. These transactions demonstrate Faroe's ability tomanage its portfolio and finances through innovative commercialtransactions.We are pursuing and managing successfully a solid business model: the portfolio is delivering real value; we have managed our financeswell despite the global financial crisis; and we are able to sustainan active and fully funded high impact drilling programme. TheCompany continues to focus on its prime objective of participating inhigh impact exploration in prospects important to the major oil andgas companies, and we continue to adhere firmly to this strategy.Faroe has, over the six years since flotation, introduced a diverseand synergistic spread of assets in the Atlantic margin and Norway,which we firmly believe will add significant shareholder value.These areas have substantial oil and gas resource potential, and areimportant sources of reserves replacement for the major oil companiesand the countries they supply. Faroe's portfolio ofrisk-reward-balanced equity interests in these prized areas istherefore unique and has significant potential.Faroe Petroleum has a highly experienced and skilled team ofprofessionals with a strong track record. Our team deals withstrategy, finance, business development and a spectrum of technicalskills encompassing geophysics, geology, petroleum and reservoirengineering, drilling as well as specialist disciplines. Notableamong the recent successes of our technical team was the Barents Sealicence award this year where the team carried out its own originallicence application work to identify particularly attractiveprospectivity in this exciting highly prized frontier area. Thiswork was rewarded by the Norwegian Authorities' decision to "marry"Faroe into a group consisting of BG, Statoil and Wintershall - allgreatly respected for their technical and financial strength, andmost importantly their exploration successes.It is testimony both to Faroe's competence in managing its financesand the quality of the drilling prospects in which we areparticipating, that our Group's drilling schedule remains littlechanged despite the global financial crisis. We are activelyinvolved in an ongoing drilling campaign which already includes ninefirm wells over the coming two years, all of which are fully funded,and we expect many more to enter the "firm" category in the monthsahead. Exploration success is the most cost-effective route tosignificant value creation for an oil and gas company, and successwith any one of our planned wells will add substantial value.The Group employs several methods for financing its ongoing drillingprogramme. These include cash reserves, third party farm-in funds(through cost carries), the Norwegian Government-backed explorationfinance facility, and tax efficient cash-flow generated from ourproduction portfolio. We have been successful in ensuring each ofthese sources of funds makes a significant contribution towardsfunding the drilling programme: cash reserves have been secured byrealising value through disposals and intelligent portfoliomanagement; excellent farm-out deals have been achieved, notably inrespect of five high cost Atlantic margin wells; we have in place afinance facility with Bank of Scotland and Barclays to fund 75% ofNorway exploration costs; and we have a still modest but growingproduction portfolio with five fields on stream currently generatingapproximately 1,500 barrels of oil equivalent per day (boepd) withthe soon to be commissioned Topaz field due on stream later in theyear.As we make every effort to participate in the best and mostsignificant wells in our core areas, so our need to fund efficientlythis activity will ideally be supported materially by productionrevenues. In the present market, there are many opportunities toacquire production on relatively attractive terms. Such acquisitionshave the potential to introduce greater tax efficiency by offsettingcarried forward losses and also the ability to leverage bank debtthrough our established borrowing base facility. We thereforecontinue to seek out suitable production acquisition opportunities,where there is additional technical upside, primarily in the form ofadditional reserve potential.ResultsThe first half of 2009 was a period of considerable activity for theGroup. Significant investments were made relating to drilling of thefinal Breagh appraisal well and the Hyme exploration well, increasingintangible assets to £77.4 million (31 December 2008: £66.5 million). Investments were also made in the development of the Topaz gasfield. The carrying value of development and production assets at 30June 2009 was £18.3 million (31 December 2008: £20.9 million)reflecting depletion of producing assets. The net assets of FaroePetroleum decreased during the period to £73.0 million (31 December2008: £79.3 million).The Group's Income Statement shows a loss after tax of £4.2 million(30 June 2008: £0.3 million). Revenue from gas and condensate at£2.9 million (30 June 2008: £0.7 million), a significant increase onlast year, includes revenues principally from the Wissey and Schoonergas fields. Against a backdrop of falling gas prices on the spotmarket and in accordance with Group policy, a significant portion ofnear term gas production has been hedged successfully to mitigate theeffect of a material drop in the gas price, in the form of forwardsales and put options.Hedging gains for the period were £1 million (30 June 2008: £0.1m),of which £0.4 million were realised and are included in revenue and£0.6m are unrealised and are included in cost of sales.Cost of sales for the period was £3.6 million (30 June 2008: £0.5million) resulting in a gross loss of £0.7 million (30 June 2008:£0.2 million profit). The reason for a gross loss in the first halfof 2009 is partly due to significantly reduced gas prices affectingour unhedged production, and because of the commercial arrangementsin place with the Wissey host facility where the required accountingtreatment accelerates the depreciation charge during the period.Exploration expenditure for the period was £3.1 million (30 June2008: £2.3 million). This expenditure includes pre-award explorationexpenditure (£1.3 million) and the write-off of licence specificexploration and evaluation expenditure on licences, previouslycapitalised, where active exploration has ceased (£1.8 million). Thelicences which were written off during the period were PL424 Shuttle,PL381 Granat and PL271 Yoda in Norway and P1457 West Athena in theUK.The Group has a tax receivable at 30 June 2009 of £38.3 million (31December 2008: £30.5 million) being 78% of exploration expenditure inNorway from January 2008 to June 2009, of which £30.5 million will bepaid to the Company in December 2009 and the remainder in December2010. Of the tax rebate relating to 2009, a credit of £1.9 million(30 June 2008: £1.7 million) has been recognised in the incomestatement, the balance being credited to deferred tax liabilities.In May 2009 it was announced that the Group had swapped its 10%interest in the Trym field for interests in the producing Enoch andGlitne oil fields in Norway and up to £4m in cash, of which £2million is payable at completion and a further amount up to £2million payable upon certain production targets being met by the Trymfield. The effective date of the transaction is 1 January 2009 butas the transaction awaits final completion, the transaction is notreflected in these results.In August 2009, Faroe Petroleum completed the sale of its interest inthe Breagh gas field for $41.6 million (£25.5 million) plus interestand working capital adjustments. The Group had investedapproximately £8.8 million in appraising the Breagh field and willrecord a pre-tax gain on disposal in the full year accounts ofapproximately £17.6 million.At June 2009 the Group had unrelieved tax losses in the UK of £56million that are available indefinitely for offset against futuretaxable profits, potentially optimising the Group's net results goingforward. The tax losses will be reduced by £8.8 million by the saleof Breagh which will trigger a capital gains tax liability ofapproximately £7 million. Whilst the full year results willrecognise this tax, the gain will, under recently amended taxlegislation relating to roll-over relief, be exempted from taxproviding the Group reinvests an amount equivalent to the Breaghproceeds in qualifying assets within a period of three years. It isthe Group's intention to make such a reinvestment.The Group remains well funded with £11.5 million in cash at mid year,production revenues, and approximately £33 million from the Breaghsale and Trym swap expected in the second half of the year. TheCompany also has a secured, largely undrawn seven-year £25 millionreserve based debt facility with Société Générale and a revolvingfacility of NOK 500 million to fund Norway exploration costs financedby the State repayment of tax credits, with Bank of Scotland andBarclays.The Board of Directors do not recommend the payment of a dividend.Review of ActivitiesAtlantic MarginThe Atlantic margin is a key area in the Group's portfolio, where asignificant portion of Faroe's upside potential lies. The Groupcurrently has a very active Atlantic margin portfolio of 14exploration licences, six in the Faroes and eight in the UK, makingFaroe the third largest Atlantic margin position holder after Statoiland DONG by gross licence area. The province has seen continuedcommercial success in 2009 and Faroe Petroleum has matured itsportfolio to the long anticipated stage whereby a significantdrilling campaign of five exploration wells is underway during 2009and 2010. The Company's average equity stake in these wells isapproximately 10%, and given the high cost of drilling, and the lackof Government incentive to drill in contrast to Norway, this averageequity stake is designed to balance the cost exposure with the upsidepotential. Four of these high impact wells will be in the UK sectorand one in Faroese waters.In September, the first well in this campaign has delivered successin the Glenlivet exploration well (Faroe 10%), operated by DONG. Thewell, drilled in 1,430 feet of water, using the Transocean Rather,encountered a gas filled Palaeocene reservoir with net gas column of201 feet, and no gas water contact. The penetrated net reservoirsection has excellent reservoir quality with high porosity and thepermeability is also expected to be very high. The Glenlivetdiscovery is located close to the planned UK west of Shetlands gasgathering system and Glenlivet has the potential to become asignificant part of this. The discovery is significant for FaroePetroleum and its Atlantic margin portfolio.The Company's second Atlantic margin exploration well scheduled to bedrilled in UK waters in 2009, is on the Tornado exploration prospect(Faroe 7.5%). Tornado is scheduled to be drilled by operator OMV inthe coming weeks. Tornado is a substantial, amplitude-supported, oilprospect, located adjacent to the undeveloped BP-operated Suilven oilfield, and within tie-back distance of the producing Schiehallion oilfield.The third exploration well scheduled to be drilled in the currentcampaign is the Faroese Anne Marie exploration well (Faroe 12.5%). This significant oil prospect is scheduled to be drilled by operatorENI in 2010 using the contracted West Phoenix drilling rig. The AnneMarie exploration well is designed to test multiple objectives. Thistarget is particularly exciting as it shares a similar geologicalsetting to that of Chevron's significant Rosebank oil discovery, andlike Rosebank, is potentially a very large structure.The fourth and fifth exploration wells in the campaign are scheduledto be drilled in UK licences North Uist/Cardhu (Faroe 6.25%) andLagavulin (Faroe 10%) respectively. Both of these licence groupshave committed to drill exploration wells and both are located on thehighly prospective Corona Ridge. The North Uist/Cardhu licence,operated by BP, has an exciting high-impact prospect, which containsmultiple reservoir objectives and is located near Chevron's Rosebankdiscovery, also located on the Corona Ridge. Drilling has beencommitted to but the exact timing has yet to be confirmed. TheLagavulin exploration well is a significant sub-basalt opportunitysituated in the deeper waters of the prospective Corona Ridge, withvery substantial upside. The well is scheduled to be drilled byoperator Chevron towards the end of 2010 using the Stena Carrondrilling rig. Faroe has secured a significant carry of costs on eachof these scheduled Atlantic margin wells, through farm-outarrangements.In addition to the committed exploration wells, good progress hasbeen made in all other Faroe Petroleum licences in the Atlanticmargin, with technical studies ongoing in order to mature prospectstowards drilling.Appraisal activity by other oil companies in the west of Shetlandregion in 2009, ahead of development decisions, continues to have apositive impact on Faroe's own exploration portfolio. This activityincludes the completion of the third appraisal well on theHess-operated Cambo discovery in block 204/10, the completion of theChevron operated 213/27-3 and 213/27-3z Rosebank North/Lochnagarappraisal wells and the spudding by Chevron of the Rosebank 213/27-4appraisal well. In addition, Total revealed plans for thedevelopment of the Laggan and Tormore gas discoveries using subseafacilities and a new pipeline for gas export to the UK mainland. Faroe's new Glenlivet gas discovery could become a significant partof this development. These appraisal projects bode well forsignificant development activity and investment in the regiontogether with the installation of important new oil and gasproduction and export infrastructure, ultimately benefiting theGroup's exploration strategy in the Atlantic margin.NorwayFaroe now has a significant portfolio of interests in Norway,maintaining a total of 18 licences. The risk-diversified portfoliocontains a good range of exploration and appraisal licences, withseveral planned wells, a variety of opportunities with differingrisk-reward profiles, and includes some very large explorationprospects. Following the maturing of prospects awarded in the APA(Awards in Pre-defined Areas) Licensing Rounds, the Group has nowcommitted to the drilling of four wells in Norway: PL475BS Maria(Faroe 30%), PL433 Fogelberg (Faroe 15%), PL431 T-Rex (Faroe 30%) andPL405 Butch (Faroe 15%). Faroe's equity stakes in wells in Norwaytend to be larger than outside Norway, as the Norwegian State funds78% of all exploration costs. This financial support reducessignificantly the requirement on the Company to farm out costs tothird parties.In January 2009, Faroe was awarded three new Norwegian licences fromthree applications in the APA 2008 Licence Round. PL475BS Maria(Faroe 30%) in the Norwegian Sea licence is an extension of Faroe'sexisting licence PL475 and is located between the Trestakk andSmørbukk Sør fields on the Halten Terrace. The work programmeincludes one firm well and the operator (Wintershall) has secured theSonga Delta rig for drilling this well early in 2010. PL510 Glinda(Faroe 20%) is located to the south of the Company's PL431 T-Rexlicence. The work commitment includes reprocessing of the existing3D seismic data and a drill-or-drop decision within two years. PL507Tetrao (Faroe 30%) is located to the north east of the Frigg Fieldand immediately adjacent to the recent Fulla Discovery in the NorthSea and has a work commitment to reprocess the existing 3D seismicdata with a drill or drop decision to be taken within three years.In March 2009, the Hyme exploration well tested a high riskstratigraphic trap on the western flank of South East Tor. The welldid not prove up hydrocarbons in the main Chalk target, but foundgood indications of oil in Palaeocene sandstone reservoirs. The newPalaeocene play has potential to add significant further resources tothe South East Tor discovery which contains contingent oil reservesof approximately 19 million barrels (mmbbls) (1.9 mmbbls net toFaroe). An appraisal well was planned to be drilled on the northernpart of the South East Tor discovery back-to-back with, and from thesame location as, the Hyme well but the operator, Lundin, decided todefer the well. The deferral will facilitate a review of the newdata and provide an opportunity to choose an optimal new welltrajectory to test both the Chalk and the newly discoveredPalaeocene. The high risk/high reward Grosso well 35/6-2, operatedby Statoil, was also completed in March. The well was drilled withinthe PL376 licence and unfortunately did not encounter hydrocarbons.In May 2009, Faroe was awarded its first licence in the Barents Seain the highly competitive Norwegian 20th Licencing Round. Thislicense is located to the north east of the Snøhvit field and just tothe east of two recent discoveries. Faroe has a 20% interest,partnering BG (operator), Statoil and Wintershall. The workcommitment includes a new 3D seismic survey with a drill or dropdecision to be taken within three years. The award demonstratesFaroe's continuing ability to carry out its own original technicalwork and to win highly prized licences together with major oilcompanies.Also in May, Faroe agreed to swap its 10% interest in Trym with DONGE&P Norge AS for production from the Glitne and Enoch fields togetherwith up to £4 million. The 9.3% share in the producing Glitne oilfield and a 1.9% share in the producing Enoch field amount toapproximately 800 barrels of oil per day (bopd) of currentproduction. DONG will retain the abandonment liability for theGlitne field.The Glitne oil field was brought on stream in 2001 and was developedwith sub-sea completed wells tied back to a leased FPSO facility. Production was originally expected to last for around three years,but better than expected performance and in-fill drilling hasresulted in extended field life. Current gross production is around7,000 bopd (650 bopd net to Faroe). A new 4D seismic survey wasacquired last year to identify remaining oil and possible new in-fillwell locations. The 4D seismic data has revealed a number ofpossible in-fill drilling candidates which currently are beingevaluated as possible targets for drilling in 2010. In addition,options are being evaluated which combine these in-fill targets withan exploration test of the Glitne West prospect.The Enoch oil field is located close to Glitne on the UK/Norwaymedian line. The field is very familiar to the Company as it wasdeveloped by Paladin Resources (acquired by Talisman Energy in 2005)and came on-stream in May 2007. The field has been delivering at astable rate of around 8,000 bopd during 2008 after the introductionof gas lift towards the end of 2007. Enoch will contributeapproximately 150 boepd net to Faroe with potential for increasedproduction with further field investment.In August, Faroe committed to the drilling of two further wells inNorway. The first well is on the PL431 T-Rex prospect, where 70% ofthe interest was successfully farmed-out to Maersk Oil, with Faroeretaining a 30% interest. Maersk Oil will take over the operatorshipand the firm well, its first in Norway. The second well is on thePL405 Butch prospect, where Faroe farmed-down a 15% interest toSpring Energy in exchange for a cost carry on drilling the well. Faroe retains a 15% interest in this licence. In addition, adetailed 2D seismic site survey over both the Fogelberg (PL433) andMaria (PL475 BS) well locations was successfully completed duringAugust. Both of these surveys will be analysed in order to furtheroptimise the final well locations.UK North SeaFaroe's UK North Sea portfolio is composed mainly of minorityinterests in gas fields at various stages of development andproduction. The Company also has a small number of explorationlicences.The Wissey field is located in the UK Southern North Sea, 10kilometres east of the Horne & Wren field facility and 25 kilometressouth east of the Thames field platform. The field is operated byTullow Oil UK Limited and consists of a single sub-sea well tied backto the Horne and Wren platform. The field came on stream in August2008 as planned at an initial production rate of 70 million standardcubic feet per day (mmscfd). Current production has stabilized ataround 30-35 mmscfd with a recent analysis of the productionbehaviour indicating an aquifer that potentially could increase therecovery of the field. As more production data is collected, arevised reservoir model and production profile will be established.The Schooner field (Faroe 4.83%), also operated by Tullow Oil, islocated approximately 34 kilometres south east of the Murdoch Field.The field has been on production since 1996 and is expected tocontinue producing into 2019. A total of 10 wells have been drilledfrom the Schooner platform, and current gross production fromSchooner is at around 15 mmscfd. There is considerable scope forincreased production on Schooner with further field investment.The Topaz gas field (Faroe 7.5%) is located 14 kilometres south eastof Schooner. A single subsea production well was drilled and testedby the Nobel Al White rig in September 2008. The field developmentinvolves a single sub sea well tied back to Schooner and the CMSsystem by a 15 kilometre, 8 inch pipeline. Installations ofpipelines and umbilical, including modifications at Schooner toaccommodate Topaz gas production have been carried out successfullythis summer, and production start up is expected in Q4 2009.The Minke and Orca gas fields (both Faroe 5.89%) were acquired fromConocoPhillips in 2006. The Minke field was put on production inJune 2007 and whilst the initial rates were 60 mmscfd, productionperformance decreased much more rapidly than predicted, most likelycaused by mechanical problems in the well, and the field has sincebeen producing only small quantities of gas. A decision on the wayforward has been postponed for a period pending review of the costplan of the remedial works. The significantly larger Orca field,also operated by Gaz de France Suez, straddles the border between theUK and Holland. In 2008, the partners agreed on a unitisation of55/45 UK/Ned split and the FDP to develop the field by installing atwo well-head platform producing gas through a pipeline to the D15platform on the Dutch side is currently being prepared.Updated Competent Persons ReportIn order to provide the directors and shareholders with an up to dateview of the potential value of the portfolio, independent engineersSenergy Limited prepared an updated competent persons report (CPR)for the Company in April 2009. The net present value (NPV) of theCompany's two year drilling programme was assessed to have increasedfrom £168 million to £189 million. The CPR assessed the resourcepotential to be 166 million barrels of oil equivalent (mmboe) risked,and 1,116 mmboe un-risked, while the economic valuation placed uponthe Company's long term asset portfolio was assessed to be £536million risked, and over £3 billion un-risked. The CPR will beupdated in the near future to reflect recent developments and theGlenlivet drilling results.OUTLOOKFaroe Petroleum is in a very active period of significant firmexploration drilling, which is fully funded, with one well currentlybeing drilled, a further well to be drilled this year, five wellsscheduled for 2010, and two wells programmed for drilling in 2011.In addition, Faroe has the opportunity to draw upon its resources, inthe forms of cash reserves, production revenues and undrawnfacilities to commit to further attractive drilling activity as wellas participate in new licensing rounds, which in time will add moredrilling targets to the programme. Further, the Group is well placedto strengthen its cash generating production base by acquiringadditional producing interests on relatively attractive terms. Suchacquisitions would be designed to move towards self-financing,underpinning the drilling programme, achieving greater taxefficiencies and leveraging debt facilities.Having laid solid foundations for this exciting programme and ourcontinuing growth, we look forward to making major progress and areconfident of delivering exceptional value for shareholders.Graham StewartChief Executive Audited Unaudited Unaudited Year to Six months to Six months to 31 DecemberGroup Income Statement 30 June 2009 30 June 2008 2008 £000 £000 £000Revenue 2,941 687 2,283Cost of sales (3,636) (518) (5,656)Asset impairment - - (3,356)Gross (loss)/profit (695) 169 (6,729)Exploration and evaluationexpenses (3,122) (2,331) (19,971)Administrative expenses (1,620) (1,098) (3,122)Operating loss (5,437) (3,260) (29,822)Finance revenue 592 1,630 2,789Finance costs (1,210) (428) (1,727)Loss on ordinary activitiesbefore tax (6,055) (2,058) (28,760)Tax credit 1,868 1,722 8,151Loss for the period (4,187) (336) (20,609)Basic and diluted loss pershare (pence) (4.00) (0.3) (19.7) Audited Unaudited Unaudited Year toStatement of Other Six months to Six months to 31 DecemberComprehensive Income 30 June 2009 30 June 2008 2008 £000 £000 £000Loss for the financial period (4,187) (336) (20,609)Cash flow hedges: - Gains on cash flowhedges taken to equity net oftax (132) - 329Exchange differences onretranslation of foreignoperations (2,437) 927 4,008Total comprehensive (loss)/income for the period (6,756) 591 (16,272) Unaudited Unaudited AuditedGroup Balance Sheet 30 June 2009 30 June 2008 31 December 2008 £000 £000 £000Non-current assetsIntangible assets 77,368 39,376 66,513Property, plant andequipment:development &production 18,317 24,967 20,855Property, plant andequipment: other 154 363 273Financial assets 13 12 15 95,852 64,718 87,656Current assetsTrade and otherreceivables 5,203 2,917 6,954Current taxreceivable 38,304 10,319 30,454Financial assets 196 - 329Cash and cashequivalents 11,468 41,888 16,706 55,171 55,124 54,443Total assets 151,023 119,842 142,099Current liabilitiesTrade and otherpayables (4,866) (7,028) (6,902)Financialliabilities (41,809) (9,763) (30,830) (46,675) (16,791) (37,732)Non-currentliabilitiesDeferred taxliabilities (29,295) (5,687) (23,083)Provisions (1,784) (1,405) (1,736)Defined benefitpension plandeficit (226) (190) (178) (31,305) (7,282) (24,997)Total liabilities (77,980) (24,073) (67,729)Net assets 73,043 95,769 79,370Equity attributableto equity holdersEquity sharecapital 10,475 10,475 10,475Share premiumaccount 91,573 91,573 91,573Cash flow hedge 196 - 329Cumulativetranslation reserve 2,377 1,732 4,813Retained earnings (31,578) (8,011) (27,820)Total equity 73,043 95,769 79,370These interim results were approved by the Board of directors on 23September 2009 and were signed on its behalf by:Iain M LanaghanFinance Director Audited Unaudited Unaudited Year to Six months to Six months to 31 DecemberGroup Cash Flow Statement 30 June 2009 30 June 2008 2008 £000 £000 £000Operating activitiesCashflow from operations (935) (3,448) (4,384)Tax rebate - - 4,301Net cashflow from operatingactivities (935) (3,448) (83)Investing activitiesExpenditure on intangible andtangible assets (17,781) (25,446) (75,539)Prepayment of expenditure onintangible assets 1,179 - (770)Interest received 592 1,373 2,418Net cashflow from investingactivities (16,010) (24,073) (73,891)Financing activitiesBorrowing 10,979 6,333 27,403Issue of ordinary sharecapital - - 432Issue costs - (57) (58)Interest paid (1,017) (197) (1,164)Net cashflow from financingactivities 9,962 6,079 26,613Net decrease in cash and cashequivalents (6,983) (21,442) (47,361)Cash and cash equivalents atthe beginning of the year 16,706 63,388 63,388Exchange differences 1,745 (58) 679Cash and cash equivalents atthe end of the year 11,468 41,888 16,706 Audited Unaudited Unaudited Year toGroup Statement of Changes in Six months to Six months to 31 DecemberEquity 30 June 2009 30 June 2008 2008 £000 £000 £000Loss for the period (4,187) (336) (20,609)Other comprehensive(loss)/income (2,569) 927 4,337Total comprehensive(loss)/income for period (6,756) 591 (16,272)Share based payments 429 408 873Issue costs - (57) (58)Net movement in shareholders'funds (6,327) 942 (15,457)Opening shareholders' funds 79,370 94,827 94,827Closing shareholders' funds 73,043 95,769 79,370Notes(i) Basis of preparationThe financial information contained in this announcement does notconstitute statutory financial statements within the meaning ofSection 435 of the Companies Act 2006.The financial information for the six months ended 30 June 2009 isunaudited. In the opinion of the directors the financial informationfor this period fairly presents the financial position, results ofoperations and cash flows for the period in compliance with IFRS.An unqualified audit opinion was expressed for the year ended 31December 2008, as delivered to the Registrar.The accounting policies adopted in the preparation of the financialinformation are consistent with those followed in the preparation ofthe Group's financial statements for the year ended 31 December 2008,except for the adoption of the following:IAS 1 'Presentation of Financial Statements'The Group has adopted amendments to IAS 1 'Presentation of FinancialStatements', with effect from 1 January 2009. This requires separatepresentation of owner and non-owner changes in equity by introducingthe statement of comprehensive income. Certain minor changes in thepresentation of the statement of changes in equity were also made tocomply with the revised standard. There was no effect on the Group'sreported profit for the period or net assets.IFRS 8 'Operating Segments'IFRS 8 replaces IAS 14 'Segmental Reporting'. It requires a'management approach' under which segment information is presented onthe same basis as that used for internal reporting purposes. This hasnot resulted in a change in the number of reportable segmentspresented. Operating segments are reported in the manner consistentwith the internal reporting provided to the chief operatingdecision-maker.(ii) Loss per shareThe calculation of loss per share is based on the weighted averagenumber of ordinary shares in issue during the period of 104,745,161(30 June 2008: 104,745,161; 31 December 2008: 104,745,161). All ofthe potential ordinary shares are anti-dilutive and as a result thediluted earnings per share is equal to the basic earnings per sharefor 2009.(iii) DividendThe Directors do not recommend payment of a dividend.(iv) Foreign currenciesThe assets and liabilities of foreign operations are translated intosterling at the rate of exchange ruling at the balance sheet date.Income and expenses are translated at weighted average exchange ratesfor the year. The resulting exchange differences are taken directlyto a separate component of equity. On disposal of a foreign entity,the deferred cumulative amount recognised in equity relating to thatparticular foreign operation is recognised in the income statement.(v) Reconciliation of loss on ordinary activities to netcashflow from operating activities Audited Unaudited Unaudited Year to Six months to Six months to 31 December 30 June 2009 30 June 2008 2008 £'000 £'000 £'000Loss before tax (6,055) (2,058) (28,760)Unrealised hedging(gain)/loss (589) 94 -Depreciation charges 3,694 407 8,690Exploration asset write off 1,781 448 19,971Fair value of share basedpayments 443 408 873Decrease/(increase) in tradeand other receivables 1,160 (987) (4,454)(Decrease)/increase in tradeand other payables (1,987) (331) 921Foreign exchange movements 194 (123) (230)Interest received (592) (1,503) (2,559)Interest paid 1,016 197 1,164Net cash flow from operatingactivities (935) (3,448) (4,384)INDEPENDENT REVIEW REPORT TO FAROE PETROLEUM PLCIntroductionWe have been engaged by the company to review the condensed set offinancial statements in the half-yearly financial report for the sixmonths ended 30 June 2009 which comprises the Consolidated IncomeStatement, Statement of Other Comprehensive Income, ConsolidatedBalance Sheet, Consolidated Cash Flow Statement, Consolidated Changesin Equity and the related notes (i) to (v). We have read the otherinformation contained in the half yearly financial report, comprisingthe Highlights summary, Chairman's and Chief Executive's Review andReview of Activities, and considered whether it contains any apparentmisstatements or material inconsistencies with the information in thecondensed set of financial statements.This report is made solely to the company in accordance with guidancecontained in ISRE 2410 (UK and Ireland) "Review of Interim FinancialInformation Performed by the Independent Auditor of the Entity"issued by the Auditing Practices Board. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyoneother than the company, for our work, for this report, or for theconclusions we have formed.Directors' ResponsibilitiesThe half-yearly financial report is the responsibility of, and hasbeen approved by, the directors. The directors are responsible forpreparing the Interim Report in accordance with the AIM Rules issuedby the London Stock Exchange which require that it is presented andprepared in a form consistent with that which will be adopted in thecompany's annual accounts having regard to the accounting standardsapplicable to such annual accounts.As disclosed in note (i), the annual financial statements of thegroup are prepared in accordance with IFRSs as adopted by theEuropean Union. The condensed set of financial statements included inthis half-yearly financial report has been prepared in accordancewith the AIM Rules issued by the London Stock Exchange.Our ResponsibilityOur responsibility is to express to the Company a conclusion on thecondensed set of financial statements in the half-yearly financialreport based on our review.Scope of ReviewWe conducted our review in accordance with International Standard onReview Engagements (UK and Ireland) 2410, "Review of InterimFinancial Information Performed by the Independent Auditor of theEntity" issued by the Auditing Practices Board for use in the UnitedKingdom. A review of interim financial information consists of makingenquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an auditconducted in accordance with International Standards on Auditing (UKand Ireland) and consequently does not enable us to obtain assurancethat we would become aware of all significant matters that might beidentified in an audit. Accordingly, we do not express an auditopinion.ConclusionBased on our review, nothing has come to our attention that causes usto believe that the condensed set of financial statements in thehalf-yearly financial report for the six months ended 30 June 2009 isnot prepared, in all material respects, in accordance with theaccounting policies outlined in Note (i), which comply with IFRS's asadopted by the European Union and in accordance with the AIM Rulesissued by the London Stock Exchange.Ernst & Young LLPAberdeen23 September 2009---END OF MESSAGE---This announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 24.09.2009 - 08:01 Uhr
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