SSE buys £18m Faroe stake in drive to secure own gas

SCOTTISH & Southern Energy has taken an £18 million stake in Aberdeen-based oil and gas explorer Faroe Petroleum as it looks to secure more of its own gas production.

The move came as Faroe announced it had raised 62.2m via a placing to fund the development of its recent discoveries and acquire new production assets.

SSE will hold 5.1 per cent of Faroe following the deal and the two companies will work together to identify and acquire gas and oil assets in the North Sea. The agreement follows the Perth-based utility's deal earlier this year to acquire its first North Sea gas production assets from US energy giant Hess for 279m as part of industry trend for energy suppliers to own their own production resources.

Alistair Phillips-Davies, energy supply director of SSE, said: "Our goal is to build up a presence in the upstream gas sector in a measured way to provide an additional source of primary fuel and a hedge for our gas generation and supply activities."

Graham Stewart, chief executive of Faroe Petroleum, said the two companies had been working together for some months to identify potential targets.

"We are looking at things that will be of interest to both them and us. I think we have like-minded management teams so it is a very exciting arrangement."

Stewart said SSE's decision to take a stake in Faroe had cemented their relationship and "endorsed our significant potential as a rapidly growing independent exploration and production company".

Stewart also said his team had now met with the Korea National Oil Corporation, which inherited a 27.5 per cent stake in Faroe after sealing the deal to buy Dana Petroleum recently.

"They have a target of increasing production over the next couple of years and we may be able to be of some assistance to them in that," Stewart said of the Koreans. "We may also be able to partner them in a few exploration activities."

Although KNOC has been touted as a potential bidder for Faroe, Stewart said he believed that the Koreans were currently very focused on dealing with the Dana acquisition and on stretching production targets over the next two years.

"I think they are pre-occupied with their production targets and we wouldn't really have much impact on those," he said.

The Faroe placing with institutional investors and management was at 165p a share, a discount of 7.7 per cent to the middle market closing price of 178.75p a share on Thursday.

Shares in Faroe closed yesterday down 5p at 173.75p.