Norway’s DNO is not letting off Faroe Petroleum’s management, this time criticizing its target company’s recent ‘glossy’ resource report following Norwegian authorities downgrade of the estimated reserves of the Oda offshore field in which Faroe owns a share.
DNO, which has launched a hostile takeover offer of 152p for Faroe Petroleum – which Faroe described as ‘opportunistic – on Tuesday noted the reference in this week’s statement by the Norwegian Petroleum Directorate “to a 30 percent reserves downgrade at Faroe Petroleum plc’s (“Faroe”) Oda field from 47.2 million barrels of oil equivalent (“MMboe”) (expressed as 7.5 million cubic meters of oil equivalent) to 32.7 MMboe (5.2 million cubic meters of oil equivalent).”
DNO has then recalled Faroe’s independent expert’s asset valuation report prepared by Gaffney, Cline & Associates, published on January 2, 2019, which provided a 47.8 MMboe figure for Oda gross proven and probable reserves “and made no reference to the downgrade.”
“Oda, in which Faroe’s Norwegian subsidiary has a 15 percent interest and which has been approved by the NPD for start-up in February/March 2019, was slated as a key contributor to production growth for Faroe. Faroe stated in its independent expert’s report that Oda will produce at a peak rate of 35,000 barrels of oil per day (“bopd”), of which 5,250 bopd is net to Faroe,” DNO said.
“Coming on the back of three unsuccessful exploration wells and the questionable Equinor swap, this previously undisclosed reserves downgrade at Oda raises concerns over Faroe’s future expected production profiles and should have been accurately reflected in the independent expert’s report, a glossy version of which was posted to shareholders on 4 January 2019. As Faroe’s largest shareholder, DNO urges the company’s board to provide transparent and timely operations updates to shareholders,” DNO said.
DNO last week extended the deadline for Faroe Petroleum’s shareholders to accept its 152p a share offer until 1.00pm London time on January 18, 2019, warning that it won’t be able to submit another offer for 12 months if the offer lapses.
The company, which owns some 30 percent of shares in Faroe, also said that even if the offer lapses, it would not be going away and work to “to safeguard DNO’s significant investment in Faroe.”
DNO ASA Executive Chairman Bijan Mossavar-Rahmani last week said: “Even if DNO’s Offer lapses or is allowed to lapse, DNO is not going away. For too long shareholders have given the Faroe board of directors a free pass. Starting with our first acquisition of shares, shareholders holding some 43 percent of Faroe’s shares have voted with their feet by seeking to exit all or part of their positions either through sales to DNO or by accepting our Offer. Whatever the outcome of this Offer process, we will make every effort, through regular communication and engagement, to encourage our fellow shareholders who remain invested to vote their shares going forward not by proxy but proactively.”
Responding, Faroe has urged shareholders not to take any action in relation to the DNO offer and not to sell their shares in the market, saying Faroe shares are worth more than what DNO is offering.
“Shareholders who sell their shares in the market or to DNO would not receive any increase in the Offer consideration should DNO revise its Offer,” Faroe said last week.
According to Faroe, GCA concluded that “the value of Faroe’s oil and gas assets more reflective of current (late December 2018) market oil pricing is in the range of US$879 million – US$1,076 million.”