Faroe Petroleum revealed a “transformational” Norwegian deal yesterday.
The Aberdeen-based company announced an asset swap with Petoro which will give a big boost to its production.
Faroe is to exchange its 30% stake in the Maria discovery for other Norwegian oil and gas production assets.
Shares in the Granite City firm closed up about 3% at 183.25p.
Graham Stewart, chief executive of Faroe, said: “We are very pleased to announce this transformational transaction, which is a significant achievement for Faroe at a number of levels.
“It demonstrates clearly the value of the Maria discovery – a high-quality, undeveloped oil field with strategic importance.
“It proves Faroe’s portfolio business model of realising significant value for exploration success, and within nine months of the Maria discovery.
“It swaps on a fair-value basis undeveloped resources for producing reserves. Significantly, it secures, on an exclusive basis, a substantial, high-quality production portfolio, without the requirement on Faroe to either pay a consideration or make the substantial investments needed for Maria’s development.
“It also increases considerably the company’s cash flows and debt capacity, thereby freeing up funding for other value-creating purposes, and it minimises exposure to future field-abandonment costs.”
Mr Stewart said the transaction was in line with Faroe’s strategy to optimise project value and to grow and strengthen its production base to fund exploration.
He added: “These new assets also represent an opportunity for our Norway team to make use of its considerable experience in identifying new infill-drilling targets, which have the potential to increase production and create new value.
“I congratulate our technical and commercial team for crystallising such value to the benefit of our shareholders since we secured the Maria licence in the APA 2008 licensing round.
“Of the 17 wells in the company’s exciting, fully funded 2011-13 drilling programme, 13 are planned to be drilled in Norway; clearly demonstrating Faroe’s continuing commitment to create further value in Norway.”
The deal will add more than 7,300 barrels of oil equivalent per day (boepd) to Faroe’s estimated 2011 average production. Faroe’s estimated 2011 average production is now expected at 9,200boepd.
Petoro manages the Norwegian state’s direct financial interests in oil and gas assets on the Norwegian continental shelf.
Under the terms of the transaction, Faroe will gain:
Njord field area – a 7.5% interest in the field and Njord unit (excluding the Noatun discovery) and a 7.5% interest in production licence PL348 and PL348B near Njord containing the Gygrid development project and an exploration prospect.
Brage field area – a 14.2% interest in the field and Brage unit and a 13.4% share in the Brage Sognefjord field.
Ringhorne East field area – a 7.8% interest in the field/unit and a 3% interest in the Jotun field/unit.
Petoro will retain the principal abandonment and decommissioning liabilities for the Petoro assets, capped at around £67million pre-tax.