NORTH Sea-focused Faroe Petroleum has highlighted its plans to expand in the area as the company looks to take advantage of the fall in the cost of acquisitions and services triggered by the crude price plunge.
Chief executive Graham Stewart said the company is braced for a long downturn in the oil and gas industry.
He appears to think a slow recovery in crude prices is the best that can be expected given the amount of excess stock available around the world.
However, Mr Stewart believes the tough times in the North Sea have created the ideal conditions for companies that have cash in the bank to expand, including Faroe Petroleum.
“The market is expected to remain challenging for some time, and for exploration and production companies with access to capital, this is an opportune time to progress projects benefiting from substantial cost reductions and to grow through acquisition,” said Mr Stewart.
The executive’s comments will be studied with interest in Scotland, where firms have slashed investment and shed thousands of jobs since oil prices started tumbling in June 2014.
With the downturn well into its third year, market watchers are anxiously looking for signs that a recovery may be in prospect.
Some have taken heart from the partial recovery in crude prices, from less than $30 per barrel in the first quarter to around $46/bbl, which has been fuelled by hopes exporters will limit output to support prices. Major producers such as Saudi Arabia will renew attempts to agree a curb on production in Algeria next week.
Commenting as Faroe posted a £36m first half loss, Mr Stewart noted: “The market now appears to be at a point where supply and demand are approaching balance, following a period of substantial global oversupply, and expectations are that an upward trend in oil prices is likely to emerge albeit at a slow rate due to the accumulated stock overhang.”
The analysis may do little to raise confidence in the prospects for a significant improvement in trading conditions in the North Sea, long seen as a challenging area in which to operate.
It provides further evidence, however, that some people believe the slump has created opportunities to pursue growth in the North Sea.
Mr Stewart said Faroe has been making good progress with a strategy which involves working across the exploration and production cycle and using acquisitions to increase the range of opportunities.
The company has noted the fall in oil prices has resulted in some firms putting North Sea assets up for sale at attractive prices, possibly to reduce debts and work commitments.
In July Aim-listed Faroe agreed a $70m (£54m) deal to acquire interests in five producing fields in the Norwegian North Sea from Dong Energy. The Danish company is focusing investment on renewables and a slimmed down portfolio of oil and gas assets, which includes a stake in the giant Laggan Tormore development off Shetland.
Mr Stewart said the assets acquired from Dong will have a material impact on production, reserves and the amount of cash the firm generates.
The company raised £66m equity funding to support the acquisition and field development work, suggesting investors share Mr Stewart’s belief in the potential benefits of such acquisitions.
Faroe has used acquisitions to expand in UK waters. In September last year the company increased its exposure to the Blane and Enoch fields in a £13m deal.
Mr Stewart also highlighted the beneficial effects of the fall in the cost of services seen in the North Sea, where firms are competing for business in a shrinking market.
He noted: “Development projects in this low commodity price environment benefit significantly from reduced costs, helping to make project economics robust at low commodity prices.”
Faroe is working on plans to bring the Butch and Snilehorn finds off Norway into production.
But the firm has written the value of its investment in the Parkmead Group-operated Perth field in the Moray Firth down to zero, in the belief there is little chance of commercialising the asset in the near to medium term.
The company has focused drilling activity off Norway amid the downturn, to capitalise on the generous tax breaks available in the country.
Faroe made a £36m loss before tax in the six months to 30 June, compared with £0.4m profit in the same period last year.
The company received an average $38.5 per barrel oil equivalent for its output, against $51.50 last time.
Average production fell to 9,030 barrels oil equivalent daily, from 10,971 boed. Production from the Njord and Hyme fields off Norway was suspended in June pending upgrade work.
Faroe expects full year production to average 16,000 boed to 18,000 boed following the Dong deal.
It had £61m net cash at 30 June, before raising funds to support the deal.
Shares in Faroe Petroleum closed up 2.5p at 67.75p.
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