Banks back Faroe’s drilling plan

By PETER RANSCOMBE
Published on 26/07/2012 22:00

SHARES in Faroe Petroleum jumped by nearly 10 per cent on Thursday after the Aberdeen-based explorer doubled the amount of lending available from its banks to £320 million to fund its drilling programme.

A syndicate of seven lenders, including newcomer SR Bank, have increased the amount of cash available to the Alternative Investment Market-quoted driller to $250m (£160m) from $125m.

They have also lengthened the amount of time Faroe has to pay back the money by one year to 30 June, 2017.

Iain Lanaghan, finance director at Faroe, said: “We are very pleased to have concluded this financing exercise, and for the strong continuing support from our banks; all of whom agreed to increase and extend this facility.

“Alongside our robust production cashflows, this available credit provides us with greater funding capacity to support the development of the group in our core areas and both in terms of organic and acquisition growth.”

Analysts said that Faroe also had $103m of cash at 30 June and more money coming in from its production wells.

Dougie Youngson, an analyst at Seymour Pierce, said: “The company is extremely well funded for its ongoing exploration and operational cash commitments.”

News of the banking deal came as Faroe’s drilling partner, Scottish Gas-owner Centrica, revealed that it has struck oil at the Cooper well off the coast of Norway.

Faroe chief executive Graham Stewart said more work needed to be carried out to assess how much oil was in the well, adding that the results would come in the weeks ahead.

He also revealed a delay to driller partner BP starting work on an exploration well in the North Uist field off the west coast of Shetland, due to “technical issues”. Stewart expects work on the well to begin within weeks.

Youngson noted: “Overall, a positive pair of announcements. In terms of our model, Cooper could add 3p [to Faroe’s share price] and a positive outcome from this well would help turn around 2012’s poor drilling results so far. We expect the share price to strengthen.”

Shares closed up 12.5p, or 9.9 per cent, at 149p, having touched 150p earlier in the session. The spurt valued the company at about £316m.