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Faroe says Breagh selloff best for its shareholders

Faroe says Breagh selloff best for its shareholders
Aberdeen-based oil and gas company Faroe Petroleum said yesterday it had agreed to sell its 10% interest in the Breagh gas field in the southern North Sea gas basin.

Aberdeen-based oil and gas company Faroe Petroleum said yesterday it had agreed to sell its 10% interest in the Breagh gas field in the southern North Sea gas basin.

The buyer, a UK subsidiary of Germany’s RWE Dea, will pay about £25.3million in cash for Faroe’s stake in the field, said to be one of the largest gas discoveries in the past 10 years in the area.

Faroe mooted a disposal in April, when it reported results for 2008, and field partner EnCore Oil said last month that the partnership in Breagh was in negotiations to sell an aggregate 70% interest in the field, thought to have 160million barrels of oil equivalent in place.

There have been two gas finds in East Breagh and West Breagh, and it is believed 60%-90% of the reserves in place can be recovered.

Five of the partners are now exiting Breagh and the sixth is cutting its stake in the deal which is likely to cost RWE Dea about £177million.

The Breagh partners are Sterling Resources, which is selling a 15% stake to RWE Dea but retaining a non-operated 30% interest, Faroe and Stratic Energy, both 10%, RegEnergys and EnCore, both 15%, and Petro Ventures, 5%.

Faroe said yesterday that, while it was clear that Breagh was an outstanding discovery, provision of development finance for an asset of this scale would be particularly challenging for junior oil companies, especially in the current economic climate.

It said that against this background the six-company partnership had taken the pragmatic decision to sell 70% of the discovery to a large company able to fund development costs expected to be £600million-plus.

Faroe said proceeds from the sale of its stake would be subject to working-capital adjustments and the deal was estimated to complete within three months.

Faroe chief executive Graham Stewart said: “The transaction clearly demonstrates the success of our business model to convert exploration and appraisal assets into cash, thereby creating significant value for shareholders.

“The cash will be reinvested in further value-creating opportunities, notably in suitable development and production opportunities in the UK. Faroe’s firm seven-well exploration programme to be drilled over the next 24 months is continuing, with the next two wells west of Shetland. Drilling on the high-risk but high-reward Glenlivet and Tornado prospects is expected to start in September.”

Faroe focuses on the Atlantic margin, the UK North Sea and Norway.

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