Interim Results
11 September 2008
FAROE PETROLEUM PLC
("Faroe Petroleum", "Faroe", the "Company" or the "Group")
Unaudited Interim Results for the six months ended 30 June 2008
Faroe Petroleum, the independent oil and gas group focused on
exploration, appraisal and development offshore North West Europe,
with 48 licences in the Atlantic Margin area (Faroe Islands and UK
West of Shetlands), the North Sea and Norway, announces its unaudited
Interim Results for the six months ended 30 June 2008.
HIGHLIGHTS
Financial progress
* Turnover of £0.7 million (30 June 2007: £0.1 million) from gas
production
* Loss of £0.3 million (30 June 2007: loss of £0.6 million)
* Cash of £41.9 million (30 June 2007: £29.7 million)
* Revolving credit facility increased to NOK 250m to fund Norway
exploration
* Secured £25m debt facility for financing field development
* Programme of more than 20 wells fully financed
Value enhancing strategy
* Create a diversified portfolio of exploration, appraisal,
development and production assets across the Atlantic Margin,
North Sea and Norway
* Participate in an active and material portfolio drilling
programme to maximise the probability of success (fully funded
drilling programme of over 20 wells)
* Balance the Company's financial exposure in any well relative to
its upside potential
* Develop portfolio of tax efficient production assets for
near-term cash flow
Very active period
* First exploration wells on William and Yoda unsuccessful, but
prospectivity remains on licences
* Appraisal drilling underway on Topaz, and exploration on East
Breagh and Marsvin
* First production from Wissey gas field commenced in August - on
prognosis
* New, independently evaluated, resource estimates published
* Cross assignment with Petro Canada for interest in Fat Cat
prospect, UK North Sea
* Acquisition of interest in South East Tor oil discovery and Hyme
exploration in Norway
* Swap with DONG of interests in Glenshee for Glenlivet, West of
Shetlands
* Successful awards of 5 new licences in Norway in strong
partnerships
* Farm-in to UK North Sea Fulmar L prospect for 10% stake with
drilling underway
Outlook
* Rolling drilling programme for next two years, including eight
further wells through to the year end
* Licence Round awards UK, Norway and Faroes scheduled for Q4 2008
and Q1 2009
* Trym and Orca gas field developments expected to be approved by
authorities this year
* Number of further opportunities being pursued to enhance
programme and portfolio value
Graham Stewart, Chief Executive, commented:
"The Company continues to make good progress in the development of
its portfolio, with one of the most active drilling programmes in the
AIM sector and a growing production base to provide increasing
financial sustainability. We have added further near term wells to
the fully funded drilling schedule and new prospects are being
actively matured for future drilling. The Company remains
financially strong and focused on its clear strategy of participating
in a sustainable multi-well programme balancing risk and reward to
deliver substantial shareholder value."
ENQUIRIES:
Faroe Petroleum plc
Graham Stewart
Tel: +44 (0)1224 650 920
uk@faroe-petroleum.com
www.faroe-petroleum.com
Financial Dynamics
Billy Clegg/Ed Westropp
Tel: +44 (0)20 7269 7157
Panmure Gordon & Co
Katherine Roe/Ashton Clanfield
Tel: +44 (0)20 7459 3600
CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW
We are pleased to announce the unaudited Interim Results for the six
months ended 30 June 2008 for Faroe Petroleum. Substantial progress
was made during the first half of 2008 firming up the drilling
programme on the Company's strong exploration and appraisal portfolio
and continuing to diversify risk through investment in field
developments to generate cash flow. Oil and gas prices have remained
high, leading to continuing high rig utilisation, but with associated
high exploration costs and competition for services and assets. The
drilling programme is progressing very well despite these challenges.
The portfolio now comprises a carefully selected group of 48
licences, most of which are non-operated, and Faroe Petroleum has
partnerships with a large number of high quality joint venture
partners and licence operators. Faroe's strategy is to limit its
financial exposure in any well to an acceptable level, determined by
balancing that investment relative to the project's risked monetary
value.
With a clearly defined portfolio strategy, Faroe Petroleum's
objective is to participate in a very active drilling programme in
order to maximise the probability of creating substantial shareholder
value. The portfolio spans a number of discrete geological play
types throughout the North Sea area (UK, Faroe and Norway) in which
the Company has considerable technical competence. Faroe Petroleum's
portfolio is designed to generate near continuous drilling activity
and is composed of high impact exploration assets, medium risk
exploration and appraisal assets and lower risk development and
production assets. This composition provides the risk and reward
balance appropriate to the Company's business model.
As the third largest position holder by gross acreage in the Atlantic
Margin Faroe Petroleum's strong strategic position in this
increasingly important area continues to make solid advances. In
partnership with major oil companies (e.g. BP, Chevron, Eni, Shell
and StatoilHydro), our Atlantic Margin drilling programme is building
momentum with participation in at least three deep water, high impact
wells to be drilled in 2009, and many more wells scheduled to be
drilled in the following years. The Atlantic Margin area continues
to attract significant oil company interest due to the high potential
resources identified, as demonstrated by the discoveries of fields of
a very material size, including Schiehallion, Foinaven, Clair,
Rosebank, Cambo and several others. The Company has been active in
this area for many years and has built its portfolio mainly through
licence rounds at low entry cost.
Complementing the Company's Atlantic Margin position, Faroe Petroleum
has also established itself firmly in Norway. Norway's significant
untapped potential combined with an attractive tax regime fit well
with Faroe's exploration and appraisal portfolio model. Under the
Norwegian tax regime there is potential to drill wells on better
terms than in any other country, by benefiting from recovery of 78%
of exploration costs on an annual basis. Faroe makes full use of the
ability to leverage this opportunity through bank debt to maximise
its drilling potential in the country. Since entering Norway in 2006
the Company has progressively built up its portfolio and drilling
programme through successful licensing round applications and
commercial activity, providing Faroe Petroleum with the largest
portfolio in Norway of any AIM listed oil and gas company, currently
comprising 20 licences. Faroe prides itself on its ability to
partner alongside very large and successful oil and gas companies in
the Atlantic Margin, and this trend has continued in the Norwegian
portfolio, including new partnerships in 2008 with Shell,
StatoilHydro, ConocoPhillips, Petro Canada, Centrica, DONG, Lundin
Petroleum, Bayern Gas and Talisman. With an accelerating drilling
programme in Norway, Faroe Petroleum expects to participate in
several wells in the remainder of 2008 alone, including wells on
Marsvin, South East Tor, Hyme and Grosso, which have the potential to
add material resources. In order to strengthen its capability in
Norway, Faroe Petroleum has applied to become a licence operator in
Norway; it already holds this status in the UK and the Faroe Islands.
Gas production revenues in 2008 were generated from two gas fields,
Minke and Schooner. Revenues were lower than expected due to a
mechanical problem in the Minke well, where a remedial plan of action
is expected to be announced in the coming months. Also, revenues
exclude Schooner production prior to 27th March 2008, when the deal
to acquire Schooner from E.ON completed. A further five gas fields
held by the Company are expected to be brought on stream, and in late
August 2008 the Wissey gas field commenced production with
significant revenues projected to be generated to Faroe's account
over the coming years. The UK Southern Gas Basin field Breagh was
successfully appraised on its west side in 2007, and the east side is
currently being drilled to potentially prove significant additional
gas resource. The Company's Trym gas field in Norway, located on the
border with Denmark, now has a new operator, DONG, and a field
development decision is expected later in the year. Similarly, the
Orca gas field, located on the border between UK and Holland, is
progressing towards development, for which sanction is expected in
late 2008. The Company's near-term, non-operated production
activity, through a number of independent fields, will provide tax
efficient income to support work programme costs. The combination of
existing cash resources, farm-in finance from third parties, bank
debt and gas sales revenues ensure Faroe Petroleum is well financed
to undertake its committed drilling and development programme.
Results
The Group's Income Statement shows a loss after tax of £0.3 million
(30 June 2007: £0.6 million). Revenue from gas and condensate at
£0.7 million (30 June 2007: £0.1 million), a significant increase on
last year, includes revenues from two gas fields, Schooner, acquired
in late March 2008, and Minke.
Under International Financial Reporting Standards (IFRS) Faroe
Petroleum is required to write off accumulated costs of Exploration
and Evaluation when active exploration ceases on an asset.
Additionally, costs incurred in applying for licences must also be
expensed. The Income Statement shows an expense of £2.3 million (30
June 2007: £1.5 million) for these items. The Group had interest
income of £1.6 million (30 June 2007: £0.8m) which reflects the high
cash balance in the period following the fund raising of £43 million
(net of expenses) in December 2007. The tax credit, related to the
78% tax rebate provided in Norway, for the 6 months to 30 June 2008
was £1.7 million (30 June 2007: £0.9 million).
The Group has invested £25.4 million during the first half of 2008 in
tangible and intangible assets. Despite this investment the group
balance sheet shows cash resources of £41.9 million at 30 June 2008,
sufficient cash resources to fund our extensive, committed
exploration programme.
On 21 April 2008 we were pleased to report that the Group signed a
£25 million borrowing base facility arranged by Société Générale to
fund field development activity. This is in addition to the facility
to bridge Norwegian tax credits arranged by the Bank of Scotland,
recently increased to NOK 250 million, of which NOK 93.3 million was
drawn down as at 30 June 2008.
The Board of Directors does not recommend the payment of a dividend
at this time.
REVIEW OF ACTIVITIES
Atlantic Margin - UK and Faroe Islands
The Atlantic Margin province has seen continued success in 2008 and
Faroe Petroleum is actively maturing its portfolio of 13 exploration
and appraisal licences in this area towards a significant drilling
campaign in 2009 and beyond.
In 2007, Faroe Petroleum successfully reduced its well cost exposure
by farming out to Idemitsu four deep water, high impact wells:
Talisker, Lagavulin, Cardhu and Tornado licences. It is anticipated
that the first of these to be drilled will be Tornado, which is an
attractive exploration prospect located adjacent to the Suilven
field.
In the Faroese sector, Faroe Petroleum has a 12.5% retained stake in
the Anne Marie prospect in exploration Licence 005 after successfully
farming out this license to Cieco in 2007. Anne Marie is a large and
exciting exploration prospect in a similar geological setting to that
of Chevron's Rosebank oil discovery. This prospect is scheduled to
be drilled by operator ENI during mid-2009.
In May 2008, Faroe Petroleum announced an agreement with DONG to swap
10% of the Glenlivet prospect (Block 214/30) for 10% of Faroe's
Glenshee licence (Blocks 217/21,22,26 and 216/30). The Glenlivet
prospect is a large gas prospect situated approximately 15 kilometres
from the proposed Laggan gas export pipeline to Sullom Voe in the
Shetland Islands. The Glenlivet prospect is an analogue to other
undeveloped gas discoveries in the vicinity. A discovery at
Glenlivet could become a significant part of the planned new UK gas
gathering system for West of Shetland for which Laggan is the focal
point. The Glenlivet Prospect is scheduled to be drilled by DONG in
Q3 2009 using the contracted Transocean Rather drilling rig.
Faroe Petroleum has continued to mature its self-operated Freya
appraisal opportunity with significant steps forward in the technical
and commercial evaluation of this project. Freya is an independent
discovery situated adjacent to BP's Clair oil field and shares a
similar geological framework. The forward work programme includes an
appraisal well to be drilled subject to suitable farm out
arrangements being concluded.
In addition to its Faroese drilling activity, Faroe Petroleum and
joint venture partners StatoilHydro, DONG and Shell have acquired 250
square kilometres of high resolution 3D seismic data in Licence 009,
targeting the sub-basalt Sildrekin prospect. Faroe Petroleum has 10%
equity and the results of the seismic survey will be used to make a
drilling decision on this substantial prospect.
Faroe Petroleum has also been actively involved in evaluating and
applying for selected UK 25th Licence Round opportunities where
awards are expected to be made in late 2008 and also in preparing for
the Faroese 3rd Licence Round this year. Good progress has been made
in progressing Faroe's Atlantic Margin licences, in order to mature
prospects towards drilling.
UK North Sea
The Company continues to add exploration and appraisal interests on a
selective basis in prospective areas in the UK North Sea. One such
area, the Moray Firth, is a prospective, yet under-explored, Central
North Sea region which benefits from a shallow water location and
significant oil and gas infrastructure to allow early field
development of discoveries. In this area, which has generated
several very large fields including the producing Piper and Claymore
oil fields, Faroe now holds five licenses with substantial license
equity ahead of drilling activity. Three of these are held in
partnership with Oilexco. The ongoing exploration work programme is
progressing towards drilling decisions in these licenses.
In the same area east of the Blake Field, the Fat Cat appraisal
campaign (Faroe 25%) is gathering pace after completing the
cross-assignment of P.1459 (Block 13/24d) and P.1404 (Block 13/25a).
The work programme for the combined license is targeting a large
Lower Cretaceous prospect, and includes the acquisition of high
resolution, high density 2D seismic data completed in late 2007, and
the drilling of a contingent appraisal well prior to December 2009,
as agreed with BERR. Interpretation of this data, in addition to the
completion of various technical studies, will determine the technical
and commercial viability of drilling a well to test the prospect.
In a recent transaction, Faroe Petroleum entered a new play on the
flanks of the Central Graben, where good quality sands have been
deposited from the neighboring high areas. In this area, Faroe has
agreed to farm in to 10% from Bow Valley of the 22/11b, the "Fulmar
L" prospect, an attractive Upper Jurassic Fulmar sand prospect.
Similar developments of good quality Fulmar reservoir sands have
recently been encountered in the Wood (Block 22/18), Howe (Block
22/12) and most recently in the Huntington (Block 22/14) discovery.
Bow Valley is the operator of the well which is already drilling with
the "Transocean Prospect" rig.
UK Southern Gas Basin
In the UK Southern Gas Basin, Faroe is building a portfolio of lower
risk appraisal opportunities and developments. The portfolio
currently consists of the Breagh discovery, the Wissey field, the
Schooner and Topaz fields and the Minke and Orca fields.
An appraisal campaign is ongoing on the Breagh gas discovery with
Sterling Resources as operator and Faroe holding a 10% share.
Drilling has already started on the first well: a vertical
exploration well on the East Breagh prospect, which is designed to
confirm reservoir extent and potentially significant upside to the
already proven West Breagh discovery. Following the East Breagh
well, a high angle / horizontal appraisal well is planned for West
Breagh to further evaluate this part of the field. These wells will
provide key data towards assessing the economic viability of
developing the Breagh gas field in terms of hydrocarbon resource base
and well performance and will also provide better understanding of
further hydrocarbon potential in the Breagh area.
The Wissey field (Faroe 18.75%) was put on production safely and
according to plan on 22nd August 2008 with initial flow rates at 70
mmscfd. The Wissey Gas Field is situated east of the Tullow operated
Horne and Wren platform. The development consists of a single well
subsea tie-back to the Horne and Wren platform, via a newly laid 10
kilometre pipeline. Gas is transported onwards to the Thames host
facility for separation and compression and from there on to the
Bacton Gas Terminal in the UK. Faroe Petroleum has entered into a
gas sales agreement with E.ON Energy Trading to sell the gas in the
market on behalf of Faroe Petroleum.
The Schooner field (Faroe 4.83%) operated by Tullow Oil, is located
in Block 44/26a extending into 43/30a, approximately 34 kilometres
South East of the Murdoch Field. Ten wells have been drilled to date
on the field which is producing at a stable gross rate of between
20and25 mmscfd.
The Topaz well is being drilled through the reservoir and at present
is being prepared for production testing. The Topaz field (Faroe
7.5%) is located 14 kilometres south east of Schooner in Blocks 49/1a
and 49/2a. RWE Dea is the operator of the field, which, subject to
production testing, is planned to come on stream in 2009.
The Minke gas field (Faroe 5.89%) operated by GDF Suez exports gas
through the NGT pipeline into Holland. The field was put on
production in June 2007 but production performance has decreased more
quickly than predicted, most likely caused by mechanical problems in
the well. A remedial development programme is underway by the field
operator, which we expect to be in place in the near future.
The significantly larger Orca field (Faroe 5.89%), also operated by
GDF Suez, straddles the border between the UK and Holland. The field
operator is working on a unitisation agreement and subsequently plans
to submit a field development plan with the intention to start
production in 2010.
Norway
Since establishing the office in Stavanger in 2006, Faroe has rapidly
built a position of 20 exploration licenses in Norway. The Company
has drilled one exploration well so far this year and has a programme
to participate in three further exploration wells and one appraisal
well before the year end. Work is ongoing to expand the Norwegian
portfolio further with applications planned in the autumn in the 20th
Norwegian Licensing Round and the 2008 APA (Awards in Predefined
Areas) Round as well as ongoing commercial activity.
In February, Faroe Petroleum was awarded five Norwegian licences
under the 2007 APA Round:
* In the Norwegian Sea, the Company was awarded 30% of PL475 (part
blocks 6406/3 and 6407/1) containing the Santana and Carlos
prospects. The work programme includes the drilling of one firm
well within three years and the operator, Revus, has already
secured the West Alpha drilling rig for drilling this well in
2010.
* Faroe has been awarded a 30% participating interest in PL477
(part block 6506/11) and PL478 (part blocks 6507/7 and 10), which
are located near to the Smørbukk and Morvin Fields (Norwegian
Sea), together with Centrica (operator) and Petro-Canada. This
is the result of a continuing cooperation between these companies
established for the APA 2006 Round. The licenses contain the
Middle Jurassic Cooper Prospect, a Lower Cretaceous gas discovery
and the Manilow Prospect. New 3D seismic data over the
prospective area was acquired in August and a drill-or-drop
decision is required within three years.
* In the North Sea, Faroe was awarded a 30% share in both PL452
(part block 7/12), which contains the Upper Jurassic Etta
Prospect and a further lead, and PL405B (part block 7/12), which
contains an extension to the Butch Cassidy Prospect and the Bank
Prospect.
Early in the year, Faroe acquired a 14% interest in Norwegian Licence
PL289 from Gaz de France Norge. This license contains the
substantial Marsvin prospect located on the border with Denmark and
is in close proximity to PL147, in which Faroe previously acquired a
10% interest from Shell and which contains the undeveloped Trym gas /
condensate field. Marsvin is a large Upper Jurassic oil prospect,
located on the south west flank of the Søgne Graben. Drilling
commenced at the beginning of September on this prospect with DONG as
operator.
In April Faroe also acquired a 10% interest in licences PL006C and
PL006D from Noreco in April. This asset contains contingent oil
reserves estimated at approximately 19 million barrels (mmbbls) (1.9
mmbbl net to Faroe) with further upside being the target of two
forthcoming wells: the South East Tor appraisal well and the Hyme
exploration well. South East Tor is an oil discovery within the
Upper Cretaceous Tor and Ekofisk chalk formations. The Hyme prospect
is a stratigraphic trap located on the western flank of South East
Tor. Later this year the operator, Lundin Petroleum, plans to first
drill the Hyme exploration well, and subsequently, and from the same
location, drill the South East Tor appraisal well.
Following its farm-in with E.ON in 2007, Faroe holds a 10% interest
in PL376 (block 35/6 and part block 35/9) located on the North East
flank of the North Viking Graben immediately north of the Gjøa Field
and south of the undeveloped Agat gas discovery. StatoilHydro is the
operator of this license and plans to drill the large Cretaceous,
Grosso prospect, towards the end of the year, with the Ocean Vanguard
drilling rig.
In April, Faroe completed the Yoda exploration well in PL271 (Faroe
10%), having farmed into this license in a transaction with
Noreco. The well was drilled with StatoilHydro as operator but did
not encounter hydrocarbons. Although Yoda did not yield a positive
result, there is further remaining prospectivity on the licence in
the Agira prospect and in a number of Triassic prospects. This
potential was not affected by the outcome on Yoda and is being
evaluated further in order to confirm possible drilling targets.
The Trym field (Faroe 10%) is located approximately seven kilometres
from the Harald platform in Denmark. The base case reserves for the
field are 156 billion cubic feet (bcf) and condensate reserves of 10
mmbbls. The licence also benefits from several additional prospects
offering considerable upside, with potential for tie-back for
development. DONG was awarded operatorship for Trym in mid-2008 and
is at present working on updating the original field development plan
for submission to the authorities by year end 2008. To that end, the
Operator is currently in negotiation to secure a jack-up rig for
drilling the production wells.
Finally, Faroe Petroleum has initiated the process of pre-qualifying
as Licence Operator on the Norwegian Continental Shelf. As licence
operator, the Company may expect to retain higher percentage working
interests and to have increased control of licence work programmes
and the timing of activities. With a highly-qualified team of nearly
20 employees based in Stavanger covering all the competencies
required of an operating oil company, the additional cost and human
resource implications for Faroe in connection with pre-qualification
are expected to be minimal.
Competent Persons Report
In connection with the Company's debt facility with Société Générale,
an independent Competent Persons Report was commissioned from
Senergy. In order to provide the directors and shareholders with an
up to date view of the potential value of the portfolio, the scope of
the independent engineer's report was extended beyond the original
requirements to cover the Company's entire asset portfolio. This
report assessed the near term resource potential (defined as that
tested by the 20 wells to be drilled within the Company's current two
year programme) to be 162 million barrels of oil equivalent (mmboe)
risked, and 1,214 mmboe un-risked; the economic valuation placed upon
the Company's long term asset portfolio (defined as near term
potential plus that from drilling an additional 13 wells expected to
be drilled) was assessed by Senergy to be £418 million risked and
£2,495 million un-risked.
OUTLOOK
The period ahead is the most active in Faroe Petroleum's history,
with some eight wells expected to be drilled in the second half of
2008 alone and many more to follow in the period beyond as prospects
mature for drilling and further well participations are secured. In
addition to the dynamic drilling programme, the Company will also be
continuing to replenish its portfolio organically on a continuing
basis, and in the near term through participation in three licensing
rounds in 2008, with awards scheduled for Q4 2008 and Q1 2009. We
also anticipate increased activity with respect to further field
development for the year ahead with near term development
opportunities anticipated in respect of Trym and Orca. The Topaz gas
field is currently being tested to further evaluate a potential near
term field development.
Faroe Petroleum's business model is founded on the principle of
portfolio drilling in high quality projects with reputable partners.
Faroe has carefully built an excellent portfolio with many
significant drilling opportunities, has ensured the Company is well
financed, and is now benefiting from increasing production revenues
from its three producing gas fields with further developments to
follow. Faroe Petroleum has a highly competent team focused on
delivering substantial returns for shareholders.
Audited
Unaudited Unaudited Year to
Six months to Six months to 31 December
Group Income Statement 30 June 2008 30 June 2007 2007
£000 £000 £000
Revenue 687 49 964
Cost of sales (518) (8) (719)
Gross profit 169 41 245
Exploration and evaluation
expenses (2,331) (1,541) (3,695)
Administrative expenses (1,098) (758) (2,560)
Operating loss (3,260) (2,258) (6,010)
Finance revenue 1,630 847 1,801
Finance costs (428) (41) (180)
Loss on ordinary activities
before tax (2,058) (1,452) (4,389)
Tax credit 1,722 869 2,700
Loss for the period (336) (583) (1,689)
Basic and diluted loss per
share (pence) (0.3) (0.8) (2.3)
Unaudited Unaudited Audited
Group Balance Sheet 30 June 2008 30 June 2007 31 December 2007
£000 £000 £000
Non-current assets
Intangible assets 39,376 17,831 24,935
Property, plant and
equipment:
development &
production 24,967 3,923 11,265
Property, plant and
equipment: other 363 487 421
Financial assets 12 11 11
64,718 22,252 36,632
Current assets
Trade and other
receivables 2,917 1,620 1,730
Current tax
receivable 10,319 2,295 4,055
Cash and cash
equivalents 41,888 29,679 63,388
55,124 33,594 69,173
Total assets 119,842 55,846 105,805
Current liabilities
Trade and other
payables (7,028) (2,114) (5,311)
Bank loan (9,261) (1,418) (3,428)
Income tax payable - (53) -
(16,289) (2,167) (8,739)
Non-current
liabilities
Bank loan (502) - -
Deferred tax
liabilities (5,687) (550) (1,340)
Provisions (1,405) (115) (784)
Defined benefit
pension plan
deficit (190) (45) (115)
(7,784) (2,128) (2,239)
Total liabilities (24,073) (4,295) (10,978)
Net assets 95,769 51,551 94,827
Equity attributable
to equity holders
Equity share
capital 10,475 7,382 10,475
Share premium
account 91,573 51,813 91,631
Cumulative
translation reserve 1,732 1,086 488
Retained earnings (8,011) (8,730) (7,767)
Total equity 95,769 51,551 94,827
These interim results were approved by the Board of directors on 10
September 2008 and were signed on its behalf by:
Graham D Stewart
Director
Audited
Unaudited Unaudited Year to
Six months to Six months to 31 December
Group Cash Flow Statement 30 June 2008 30 June 2007 2007
£000 £000 £000
Operating activities
Cashflow from operations (3,448) 193 (2,810)
Tax rebate - - 1,071
Net cashflow from operating
activities (3,448) 193 (1,739)
Investing activities
Expenditure on intangible and
tangible assets (25,446) (5,893) (15,443)
Interest received 1,373 958 1,815
Net cashflow from investing
activities (24,073) (4,935) (13,628)
Financing activities
Borrowing 6,333 1,418 3,427
Issue of ordinary share
capital - - 44,758
Issue costs (57) - (2,278)
Interest paid (197) (18) (180)
Net cashflow from financing
activities 6,079 1,400 45,727
Exchange differences (58) 5 12
Net (decrease)/ increase in
cash and cash
equivalents (21,500) (3,337) 30,372
Cash and cash equivalents at
the beginning
of the year 63,388 33,016 33,016
Cash and cash equivalents at
the end
of the year 41,888 29,679 63,388
Audited
Unaudited Unaudited Year to
Group Statement of Changes in Six months to Six months to 31 December
Equity 30 June 2008 30 June 2007 2007
£000 £000 £000
Loss for the period (336) (583) (1,689)
Exchange differences on
retranslation of foreign
operations 927 (64) 1,068
Share based payments 408 288 627
New shares issued - - 45,189
Issue costs (57) - (2,278)
Net movement in shareholders'
funds 942 (359) 42,917
Opening shareholders' funds 94,827 51,910 51,910
Closing shareholders' funds 95,769 51,551 94,827
Notes
(i) Basis of preparation
The financial information contained in this announcement does not
constitute statutory financial statements within the meaning of
Section 240 of the Companies Act 1985.
The financial information for the six months ended 30 June 2008 is
unaudited. In the opinion of the directors the financial information
for this period fairly presents the financial position, results of
operations and cash flows for the period in compliance with IFRS.
An unqualified audit opinion was expressed for the year ended 31
December 2007, as delivered to the Registrar.
The accounting policies adopted in the preparation of the financial
information are consistent with those followed in the preparation of
the Group's financial statements for the year ended 31 December 2007,
except for the adoption of the following new policies:
Finance Costs and Debt
Finance costs of debt are allocated to periods over the term of the
related debt at a constant rate on the carrying amount. Arrangement
fees and issue costs less directly attributable transaction costs are
amortised and charged to the income statement as finance costs over
the term of the debt.
All other borrowing costs are recognised in the income statement in
the period in which they are incurred.
Derivative Financial Instruments and Hedging
The Group's activities expose it primarily to the financial risks of
changes in commodity prices. The Group uses swap contracts and other
derivative contracts to hedge these exposures. The Group does not use
derivative financial instruments for speculative purposes.
Derivatives are initially recognised at fair value on the date a
derivative contract is entered into, and are subsequently re-measured
at their fair value. The method of recognising the resulting gain or
loss depends on whether the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged. The Group
designates derivatives as hedges of highly probable forecast
transactions (cash flow hedge).
The effective portion of changes in the fair value of derivatives
that are designated and qualify as cash flow hedges, are recognised
in equity. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement. Amounts accumulated
in equity are recycled in the income statement in the periods when
the hedged item will affect profit or loss (for example, when the
forecast sale that is hedged takes place). When a hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at
that time remains in equity, and is recognised when the forecast
transaction is ultimately recognised in the income statement. When a
forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in equity is immediately transferred
to the income statement.
Certain derivative instruments do not qualify for hedge accounting.
Such derivatives are classified as at fair value through profit or
loss, and changes in the fair value of any derivative instruments
that do not qualify for hedge accounting are recognised immediately
in the income statement.
(ii) Loss per share
The calculation of loss per share is based on the weighted average
number of ordinary shares in issue during the period of 104,745,161
(30 June 2007: 73,817,916; 31 December 2007: 104,745,161). All of the
potential ordinary shares are anti-dilutive and as a result the
diluted earnings per share is equal to the basic earnings per share
for 2008.
(iii) Dividend
The Directors do not recommend payment of a dividend.
(iv) Foreign currencies
The assets and liabilities of foreign operations are translated into
sterling at the rate of exchange ruling at the balance sheet date.
Income and expenses are translated at weighted average exchange rates
for the year. The resulting exchange differences are taken directly
to a separate component of equity. On disposal of a foreign entity,
the deferred cumulative amount recognised in equity relating to that
particular foreign operation is recognised in the income statement.
(v) Reconciliation of loss on ordinary activities to net
cashflow from operating activities
Unaudited Audited
Six months to Unaudited Year to
30 June Six months to 31 December
2008 30 June 2007 2007
£'000 £'000 £'000
Loss before tax (2,058) (1,447) (4,388)
Unrealised hedging loss 94 - -
Depreciation charges 407 90 768
Exploration asset write off 448 1,541 345
Share option charges 408 288 627
Decrease/(increase) in trade
and other receivables (987) 749 4,090
(Decrease)/increase in trade
and other payables (331) (98) 370
Foreign exchange movements (123) (124) (139)
Interest received (1,503) (825) (1,663)
Interest paid 197 18 180
Net cash flow from operating
activities (3,448) 193 (2,810)
INDEPENDENT REVIEW REPORT TO FAROE PETROLEUM PLC
Introduction
We have been engaged by the company to review the condensed set of
financial statements in the half-yearly financial report for the six
months ended 30 June 2008 which comprises the Consolidated Income
Statement, Consolidated Balance Sheet, Consolidated Cash Flow
Statement, Consolidated Changes in Equity and the related notes (i)
to (v). We have read the other information contained in the half
yearly financial report, comprising the Highlights summary,
Chairman's and Chief Executive's Review and Review of Activities, and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the company in accordance with guidance
contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity"
issued by the Auditing Practices Board. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the company, for our work, for this report, or for the
conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the Interim Report in accordance with the AIM Rules issued
by the London Stock Exchange which require that it is presented and
prepared in a form consistent with that which will be adopted in the
company's annual accounts having regard to the accounting standards
applicable to such annual accounts.
As disclosed in note (i), the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included in
this half-yearly financial report has been prepared in accordance
with the AIM Rules issued by the London Stock Exchange.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK
and Ireland) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us
to believe that the condensed set of financial statements in the
half-yearly financial report for the six months ended 30 June 2008 is
not prepared, in all material respects, in accordance with the
accounting policies outlined in Note (i), which comply with IFRS's as
adopted by the European Union and in accordance with the AIM Rules
issued by the London Stock Exchange.
Ernst & Young LLP
Aberdeen
10 September 2008
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