DNO questions wisdom of Faroe’s swap deal with Equinor

DNO's increased bid values Faroe at values the company at £641.7million
Faroe news

A Norwegian oil firm has raised concerns about an asset swap deal agreed by the Aberdeen company it is attempting to take over.

DNO said it was unsure whether Faroe Petroleum’s decision to hand over stakes in several development assets to Equinor, in exchange for older producing fields, was a deal that represented “good value”.

Analyst and fund managers suggested Faroe’s deal with Equinor was a useful piece of business.

Faroe, headquartered in the Granite City, will divest its equity in the Njord and Hyme redevelopments and the Bauge tie-back project off Norway.

But it will gain Equinor’s interests in the Alve, Marulk, Ringhorne East and Vilje wells, which are producing.

Oslo-based DNO is clearly concerned about the deal. It described Njord as a “high quality, large scale growth hub” operated by the Norway’s national oil producer, Equinor.

And it said the assets Faroe had agreed to buy were “mature and declining”.

DNO said in a statement: “While Faroe has asserted this deal is not designed to stop the DNO offer, we need to ask if this is good value for a company seeking growth.”

Earlier this year, DNO raised its equity in Faroe to 28%. Last week, it upped the ante with an offer to buy the rest of the company for £1.52 per share.

The bid represented a premium of 20.8% on Faroe’s price at the end of the previous day’s trading.

But Faroe’s share price has since risen to around £1.55.

Faroe urged investors to snub the hostile takeover offer, calling it “opportunistic”.

A top fund manager said yesterday that Faroe’s deal with Equinor was “yet another demonstration” of the Aberdeen firm’s true value.

Paul Mumford, of Cavendish Asset Management, said last week that he was “deeply unhappy” with DNO’s offer to buy the remaining equity in Faroe.

At the time, Cavendish held 5.14 million shares in the company.

On Faroe’s transaction with Equinor, he said: “By swapping exploration acreage into substantial production, Faroe can increase cash flow and reduce future capital expenditure.

“The possibility of special dividends is the icing on the cake.

“As a result, it’s no wonder shares are above DNO’s opportunistic bid.

“Taking this into account, a successful bid would need to be well above £2 per share.”

Analysts at Cantor Fitzgerald said the transaction should prove positive, adding significant near-term production and cash flow.

Faroe chief executive Graham Stewart said the deal rebalanced the company’s portfolio and strengthened its “already robust balance sheet”.

It adds production totalling 7-8,000 barrels of oil equivalent (boe) per day to Faroe’s portfolio in 2019.

Mr Stewart said he was confident in Faroe’s ability to reach its target of 50,000 boe per day.

He added: “This deal rebalances our asset mix after a series of exploration successes.”