T-Rex and Bolan out of tune as wells prove not to be viable

SHARES in Faroe Petroleum fell 5 per cent yesterday after the Aberdeen-based explorer revealed it had discovered oil in its Bolan and T-Rex wells off the coast of Norway but not in high enough quantities to make them commercially viable.

Chief executive Graham Stewart was upbeat following the news because it proved their was oil in the area.

But he admitted he was “disappointed” that the reservoir of oil wasn’t as thick as Faroe had originally hoped.

Both Bolan and T-Rex lie near to the Smørbukk fields, where Norwegian state energy company StatOil is producing oil.

They are also close to Faroe’s own Maria discovery, where the company struck oil in 2010 in one of the largest finds off the coast of Norway in recent years.

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Last year Faroe swapped Maria with Norwegian oil company Petoro for a stake in fields that are already producing oil.

The cash from sales of oil from those fields is being used to help fund Faroe’s extensive drilling programme this year both in British and Norwegian waters.

Stewart said: “The well does provide very important new data and information, which will allow further evaluation of this exciting exploration province in which Faroe has a number of licences.”

Stewart said the quality of the oil recovered from the two exploration wells was of a similar quality to that recovered in 1991 when StatOil drilled the first holes in the area.

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He added that Faroe was preparing to drill three wells between April and June, including the “North Uist” prospect off the west coast of Shetland.

In keeping with the firm’s tradition of naming its Norwegian exploration wells after singers and songs, the following two attempts will be called “Clapton” and “Cooper”.

In a note entitled “T-Rex extinct?”, Keith Morris – an analyst at Investec Securities –cut his target price on Faroe from 210p to 200p but maintained his “buy” recommendation. “The discovery of oil in the first well on this large area is encouraging, but clearly the company will have to do further work to pin down where a thicker and potentially commercial reservoir can be found,” Morris added.

Analyst Sam Wahab also cut Seymour Pierce’s target price on Faroe by 10p to 291p, noting the firm has “a strong exploration track record, which far exceeds the industry average”.

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Shares closed down 8.25p at 156.5p valuing the company at about £330 million. The stock had fallen as low as 147p earlier in the day.