Faroe shares pumped up after tests point to lucrative gas find

Published on Tuesday 6 January 2009 20:17

FAROE Petroleum shares leapt 30 per cent yesterday after the firm revealed results from a well in the southern North Sea that pointed to a significant gas discovery.

The Aberdeen-based group said a second well on the West Breagh gas field, in which it has a 10 per cent stake, had encountered 1,200ft of "gas-bearing" sand, compared with just 50ft of sand at an initial well drilled in 2007.

While the earlier well flow tested at about 17.6 million cubic feet of gas per day, a rate that would make development marginal from a commercial perspective, the companies behind the project now believe they may have struck a potentially lucrative gas reservoir.

Faroe chief executive Graham Stewart said that while it would not be clear how much gas was in the reservoir until the results of flow testing were revealed, the results from the drilling "remove uncertainty" over whether the well would be viable as a commercial development.

"The expectation is that there is a good sized resource there, but the quality of the sand and the amount of sand that has been encountered gives us a lot more confidence that the thing's going to be a quite sizeable and commercially strong development," Stewart said. "All that said, we won't know for certain until the end of January."

The field is not likely to be developed for at least two years, Stewart added.

Analysts at Ambrian reiterated their "buy" rating on the shares after the announcement.

They said: "This is a positive start to the year for Faroe and as a fully funded exploration and development company with exposure to a multiple well drilling programme, we feel they are well placed to not only survive 2009 but also to offer investors the opportunity for capital growth."

Shares in the Aim-listed company were up by more than 40 per cent at one point yesterday, eventually closing 16.5p, or 29.6 per cent, higher at 72.25p.