Company Presentation November 2014
Company Presentation November 2014 Disclaimer These materials do not constitute or form any part of any offer or invitation to sell or issue or purchase or subscribe for any shares in Faroe Petroleum plc (the “Company”) nor shall they or any part of them, or the fact of their distribution, form the basis of, or be relied on in connection with, any contract with the Company relating to any securities. Any decision regarding any proposed acquisition of shares in the Company must be made solely on the basis of public information on the Company. These materials are not intended to be distributed or passed on, directly or indirectly, to any other persons. They are available to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any other purpose. No reliance may be placed for any purpose whatsoever on the information contained in these materials or on their completeness. Any reliance thereon could potentially expose you to a significant risk of losing all of the property invested by you or the incurring by you of additional liability. No representation or warranty, express or implied, is given by the Company, its directors or employees, or their professional advisers as to the accuracy, fairness, sufficiency or completeness of the information, opinions or beliefs contained in these materials. Save in the case of fraud, no liability is accepted for any loss, cost or damage suffered or incurred as a result of the reliance on such information, opinions or beliefs. Certain statements and graphs throughout these materials are “forward-looking statements” and represent the Company’s expectations or beliefs concerning, among other things, future operating results and various components thereof, including financial condition, results of operations, plans, objectives and estimates (including resource estimates), the Company’s anticipated future cash-flow and expenditure and the Company’s future economic performance. These statements, which may contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect” and words of similar meaning, reflect the directors’ beliefs and expectations and involve a number of risks and uncertainties as they relate to events and depend on circumstances that will occur in the future. Forward-looking statements speak only as at the date of these materials and no representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. The Company expressly disclaims any obligation to update or revise any forward-looking statements in these materials, whether as a result of new information or future events. If you are considering buying shares in the Company, you should consult a person authorised by the Financial Conduct Authority who specialises in advising on securities of companies such as Faroe Petroleum plc. Faroe overview Faroe’s exploration-led and production-backed strategy is delivering exceptional results Significant recent exploration successes in Norway: Snilehorn and Pil Substantial potential being realised across portfolio Faroe has built an outstanding portfolio Largest acreage position in Norway of any London quoted independent Balanced portfolio of assets Ongoing drilling programme targeting up to 5 wells per annum, funded from cash flow Material, well balanced, tax efficient production Faroe’s world class sub-surface competence is at the heart of its success Faroe is on track to become the preeminent E&P player in Norway and the UK Consistent and proven strategy Exploration Target up to 5 material wells per year High impact – near-field (infrastructure-led) and frontier Leverage competitive edge Win licences, drill wells and make discoveries Monetisation Realise value of exploration discoveries Exploit M&A skills and experience Swap, divest, develop (highly selective) & acquire assets Cash Consolidate value, grow reserves, production and cash flow Prudent financial management Generate strong production/cash flow – fund exploration programme Since 2010: 4 x increase in production; 8 x increase in reserves;7 significant discoveries Faroe’s growth model – building core value and scale Prospective Resources 2C Resources 2P Reserves Production Licence awards – maintain success Farm-ins High-grade prospects 4 - 5 E&A wells per year > 1 in 3 discovery rate Maintain high working interests c.2.5 Bn boe 200 mmboe FDP sanction Highly selective on developments Acquisitions 100 mmboe 20,000 boepd 100 20 75 15 50 10 50 25 5 0 0 3 Value-accretive acquisitions & swaps Invest in our producing fields 200 150 2 100 1 0 2010 2014 2017 2010 2014 2017 0 2010 2014 2017 2010 2014 2017 Faroe on track to become preeminent E&P player in the wider North Sea Exploration and appraisal Significant Pil discovery – 2 follow-up wells in 2015 2014 discovery Significant success - March 2014 - Faroe 25% Gross columns ca 135m of oil and 91m of gas Well test flowed at a stable rate of 6,710 bopd of 37° API oil, 56/64” choke Prolific reservoir - very high net:gross ratio Preliminary Pil and Bue estimated range of gross recoverable resource of 80-200 mmboe* 2015 follow-up programme Draugen field Two follow up wells to the Pil discovery Njord field Transocean Arctic on contract Targeting estimated unrisked prospective resources of 93 - 490 mmboe (gross) * Source: Operator / NPD Pil discovery Exploration/appraisal Bister – near field exploration well in 2015 PL348, Statoil operator, Faroe 7.5% Building on Snilehorn success from late 2013, (Snilehorn gross recoverable resource range estimate of 57-101 mmboe) Bister prospect being planned for drilling in H1 2015 Evidence of a pressure barrier between Snilehorn and Hyme contributes towards de-risking of the Bister prospect Seismic amplitude anomaly on Bister of similar character to the anomalies on Snilehorn and Hyme Targeting estimated unrisked prospective resources of 20 - 90 mmboe (gross) Bister Snilehorn Hyme Njord Draugen Exploration/appraisal Shango: near-field exploration well in 2015 PL627, Total operator, Faroe 20% Located on the northern part of prolific Utsira High Large undrilled Jurassic structure Shango prospect de-risked by Skirne production performance, possible spill-over from Shango to Skirne If successful, will be target for fast-track tie-back development Leif Eiriksson drilling rig on contract for drilling in H1 2015 Targeting estimated unrisked prospective resources of 30 - 110 mmboe (gross) HC Spillroute Shango well Exploration/appraisal Kvalross – Frontier exploration well in 2015 PL611, Wintershall operator, Faroe 40% Awarded in May 2011 in the Norwegian 21st Licensing Round Located in the Barents Sea to the south of OMV’s significant Wisting discovery The well is planned to test two targets: the Lower Triassic Kvalross prospect with very significant gas resources potential in Klappmyss clinoform reservoirs within a megaclosure the Early Triassic Kvaltann prospect, a Snadd Formation sandstone channel sitting directly above the Kvalross Prospect with substantial oil potential as proven in the Wisting shallow discovery to the north Scheduled to be drilled with the Transocean Arctic drilling rig in H2 2015 Targeting estimated unrisked prospective resources of 50 580 mmboe (gross) Kvalross/Kvaltann well Very significant opportunity, as Barents Sea is shaping up well Expected drilling programme: current outlook Prospect Equity Q1 Pil - first follow up well * Shango * Pil - second follow up well * Bister * Kvalross * Dazzler * Aileen Milagro 2015 Q2 Q3 Q4 2016 Q1 Q2 25.0% 20.0% 25.0% 7.5% 40.0% 20.0% 50.0% 30.0% * committed Very active programme ahead – fully funded with significant upside potential Move 2C Contingent Resources to 2P Reserves Perth, Dolphin & Lowlander – significant upside HOA enabling future joint development of Perth (Faroe 34.6%), Dolphin (34.6%) and Lowlander (100%) Lowlander, Dolphin and Perth estimated to contain 270 mmboe of oil place, - ready appraised, 80 mmboe recoverable (100%). Previous barrier to development - no existing facilities in area for production of sour crude oil1 Rig and contracting markets offer opportunity for improved economics Work underway towards preparing the joint FDP – scheduled for 2016. 1 Tartan is able to handle only limited amount of low-H2S crude Unlocking the assets has potential to generate exceptional return Production Schooner & Ketch acquisition in 2014 Accretive deal grows production and 2P reserves Diversifies production portfolio Use of carried forward losses allows rapid payback of consideration – est. 2016 Provides tax shelter for future investments in the UK sector Acquisition financed from existing RBL debt facility 60% operated interests in two good quality producing gas fields developed by Shell/Esso Improved balance between oil and gas – approximately 50:50 Improves tax efficiency Adds 3,000 – 4,000 boepd net Adds 5.9 million boe of 2P reserves at 1/1/14 (increase to 33.1 million boe overall) Significant potential to further boost production, grow reserves and extend field life Initial consideration of £23.1m paid at completion Introduces financial gearing at a prudent level Faroe becomes a production operator in a measured way Small increase in staff level Operating model based on “duty holder” principle to continue Plans to increase reserves and production through investment programme Phase 1: operational efficiencies, and Phase 2: infill well drilling programme Production Njord and Hyme – back on line, performing well The project to strengthen Njord A facility deck structure completed on time Njord and Hyme brought back on-stream in July 2014 as planned Monitoring programme to assure Njord A hull integrity being implemented Operator’s plan is for a two year production period until mid-2016 while Draugen Snilehorn Hyme Njord planning as a base case to take Njord A facility back to shore for hull repair Partnership focus on long-term value proposition from Greater Njord Area which has seen considerable recent exploration success Overall remaining 2P Reserves and 2C Resources in excess of 170 mmboe (gross) in Njord, Hyme and Snilehorn Pil and Bue estimated 80-200 million boe Bister and the Pil follow-up wells offer potential for significant further exploration success Faroe very well positioned across the area Pil Key financials Revenues H1 2014 turnover £53.5m (1H 2013: £89.0m) (targeting significant increase for full year) Average 2014 economic production* guidance 7,000 – 10,000 boepd August economic production approx. 12kboepd net Production split oil/gas (approximately 50:50) Liquidity Cash at 30 Jun-14 of £96.7m Largely undrawn Reserve Based Lending facility (RBL) of $250m Exploration Financing Facility (EFF) of approx £150m (NOK 1.5 bn) (plus NOK 500 million accordion) Capex outlook for 2014 Planned exploration drilling programme in 2014 of approx. £110m = £35m post-tax (actual Faroe cost) Development capex in 2014 is expected to be approx. £30m Tax efficiency UK tax losses of £75.0m (June 14); production provides tax shield for UK exploration Norway: utilisation of 78% exploration tax rebate; EFF funds 75% of net exploration expenditure * Economic production for 2014 includes Schooner and Ketch, where Faroe received the economic benefit from the associated production from 1 Jan-14 but can only account for it from the completion of the acquisition on 9 Oct-14 Faroe well positioned in lower oil price environment Financially robust Uncommitted cash on the balance sheet Significant head-room in existing debt facilities Low gearing level and low cost of debt Production generating strong free cash-flow even at much lower oil price levels Opex of the producing fields in the range US$10-35/boe Oil and gas hedges to Q4’15 – 55% of (post tax) oil hedged at $90/bbl, 35% of gas hedged at 50p/therm Production balanced between oil and gas and between Norway and the UK No large capital commitments ahead Glenlivet divested in a timely manner - £10m consideration (in part deferred) PLUS £55m capex saved No significant development projects in 2015 Capex in 2015 expected in range £10-30m for infill drilling in Brage and possibly one Blane infill well E&A programme remains solid with potential for significant value creation The 5 well E&A programme for 2015 on track The net cost of the E&A programme is expected to be approximately £30m – funded from cash flow Faroe strongly positioned to weather lower oil prices - and grow Summary and outlook Solid and proven business model delivering sustainable value growth, principally through drill-bit Exploration-led strategy continues to deliver material success, underpinned by strong cash flow Balanced portfolio World-class technical team Operationally strong Schooner/Ketch acquisition recently completed, expected to add 3–4,000 boe/d net Faroe in 2014 Njord/Hyme back on stream in July 2014, currently producing well (5,000+ boe/d net) Economic production guidance for 2014 remains at 7–10,000 boe/d* Forward programme is material yet relatively low cost and subject to State refund 5 well exploration programme in Norway for 2015 remains intact Post tax rebate net cost of 2015 drilling campaign expected to be approximately £30m Exploration, development and production capital expenditure for 2015 likely to be in line with 2014 Constantly monitoring UK/Norwegian assets markets for potential acquisition opportunities Planned growth in fundamentals is on track Progressing 2C to 2P transitions positively Actively focused on growth through asset swaps, trading opportunities etc * Economic production for 2014 includes Schooner and Ketch, where Faroe received the economic benefit from the associated production from 1 Jan-14 but can only account for it from the completion of the acquisition on 9 Oct-14 Strong platform, exciting, high impact 2015 programme, growth planned Differentiators Excellent exploration track record Experienced management & clear strategy Financial strength Sustainable multi-well drilling programme Excellent monetisation track record Strong Norway position Executive team Graham Stewart – Chief Executive Officer Instrumental in founding Faroe Petroleum in 1998 Over 25 years’ experience in oil and gas technical and commercial affairs Previously finance director and commercial director at Dana Petroleum from 1997 to 2002 Experience with Schlumberger, DNV Technica, Petroleum Science & Technology Institute Offshore Engineering degree (Heriot-Watt University) and MBA (University of Edinburgh ) Helge Hammer – Chief Operating Officer Joined Faroe Petroleum in 2006 Over 25 years’ technical & business experience, incl. Shell (Norway, Oman, Australia and Holland) Managing Director of wholly owned Norwegian subsidiary, Faroe Petroleum Norge AS Previously Asset Manager and Deputy Managing Director at Paladin Resources Economics degree (Institut Français du Pétrole, Paris) Petroleum Engineering degree (NTH University of Trondheim) Jonathan Cooper – Chief Financial Officer Joined Faroe Petroleum as Chief Financial Officer in July 2013 Former Finance Director of Gulf Keystone Petroleum and Sterling Energy and CFO of Lamprell plc Former Director of the Oil and Gas Corporate Finance Team of Dresdner Kleinwort Wasserstein Broad range of experience from mergers and acquisitions, public offerings and financing Chartered accountant by training having qualified with KPMG PhD Mechanical Engineering (University of Leeds)
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