Bue-tiful result for Faroe Petroleum

Faroe Petroleum looks in good shape after finding oil at the Bue prospect in the Norwegian Sea. The bottom end of the gross recoverable resource range at the nearby Pil discovery has increased significantly, too.

The Bue side-track well encountered an 18 metre hydrocarbon column, and an early estimate from the operator puts the gross size of the Bue discovery, in which Faroe has a 25% interest, at between six and 25 million barrels of recoverable oil equivalent (mmboe). It's also been proven that Bue is a separate accumulation of hydrocarbons from Pil.

In addition, the Pil side-track just a few kilometres from Bue hit a gross hydrocarbon-bearing reservoir section with about 80 metres of oil. As a result, licence operator VNG ratcheted up its estimate of gross recoverable resources for the Pil discovery to between 72 and 172 mmboe from 50 to 170 mmboe previously. That means 18-43 mmboe for Faroe.

"The current resource range for the Pil and Bue discoveries together is now estimated to be between approximately 80 and 200 million barrels of oil equivalents (mmboe) (20 to 50 mmboe net to Faroe), of which around 80% is estimated to be oil and condensate," said Faroe chief Graham Stewart.

Panmure Gordon puts the valuation impact of this latest announcement at about 10p per share. "We believe this announcement confirms Faroe's strong track record," said the broker. Restarting production at the Njord platform, in which Faroe has a 7.5% stake, soon will boost cash generation, too.

Faroe's share price has fallen by a fifth since May's disappointing results at the Butch East exploration well. But at 121p, the momentum looks to be building again, and the company is well-funded. Both Westhouse and Panmure Gordon still reckon the shares could be worth at least 200p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.