24th Mar 2015 11:30
LONDON (Alliance News) - Faroe Petroleum PLC Tuesday said it swung to a substantial pretax loss in 2014 after recording impairment charges against its assets in the North Sea and against exploration spending, as an increase in production was offset by the fall in oil prices since the middle of 2014.
However, the company said production has increased during 2014, with further growth expected in 2015 alongside hedging over half of its production to try to protect itself from the fall in oil prices and said its exploration programme this year will benefit from a Norwegian tax rebate.
The oil and gas exploration and production company operating in the North Sea swung to a GBP165.8 million pretax loss in the year ended December 31, from a GBP10.0 million profit in 2013 as the company recorded significant impairment charges.
Faroe recorded a GBP38.5 million impairment charge primarily on the Brage, East Foinaven and Schooner and Ketch fields, all in the North Sea. In 2013, the company recorded only GBP2.1 million in impairments.
The company also wrote off GBP131.7 million on exploration and evaluation expenditure on previously capitalised licences where active exploration has now ceased. This includes costs related to relinquished licenses and unsuccessful well costs on the Cooper, SE Tor, Novus, Darwin, Butch, North Uist and other fields. It also said it booked GBP7.7 million in pre-award exploration expenditure in 2014.
Revenue for the year remained fairly flat at GBP129.2 million from GBP129.4 million as an increase in production was offset by the fall in oil prices. Faroe achieved an average of USD71.4 per barrel of oil equivalent in 2014 compared to GBP105 per barrel a year earlier, but its operating cost per barrel also fell due to higher production, to USD33.5 per barrel of oil equivalent from USD42.2 per barrel.
Production for the year rose to 9,106 barrels of oil equivalent per day from 6,059 barrels per day, hitting the upper end of the company's guidance after the Hyme and Njord fields came back into production during the year and the company acquired a 60% operating interest in the Schooner and Ketch gas fields.
"Operationally, the year delivered excellent results for the business with significant exploration success at the Pil and Bue wells, sustained production coming in at the upper end of expectations with Njord and Hyme back on production, and the acquisition of the Schooner and Ketch UK gas fields," said Chief Executive Graham Stewart.
Faroe said production in 2015 will be between 8,000 to 10,000 barrels of oil equivalent per day. Faroe said 58% of its production in 2015 has been hedged at an average of USD89 per barrel of oil and 50.0 pence per therm for gas.
At the end of the period, Faroe reported a cash balance of GBP92.6 million, with net cash of GBP69.6 million.
"Faroe aims to be cash-neutral in 2015 at an average Brent oil price of USD60 per barrel and gas price of 45.0 pence per therm with an expected average operating expenditure of approximately USD30 per barrel of oil equivalent," said the company.
"Our Norwegian position is now one of the most significant of any UK independent exploration and production company and, despite the challenging market conditions, the company is set for another year of growth, with a fully-funded drilling programme of low cost, high impact exploration wells, all of which will benefit substantially from Norway's tax-based exploration financing incentives," said Stewart in a statement.
Faroe is planning on drilling four "high impact" exploration wells in 2015, all of which will benefit from Norway's 78% tax rebate.
In 2014, Faroe spent GBP87.2 million before tax in exploration and appraisal expenditure, which totalled GBP23.0 million after tax whilst development and production investment and acquisitions totalled GBP48.3 million.
In 2015, Faroe said it will spend GBP100 million in exploration and appraisal expenditure before tax, which is GBP26 million after tax, and its capital expenditure budget and development costs will total around GBP17 million, it said.
"The wells will target considerable resource potential with a spread of risk and cost exposure, all to be fully funded from our existing cash, production cash flow and our Norwegian exploration finance facility, in order to benefit from Norway's 78% tax incentive for exploration," said Faroe.
"Faroe is well placed to deliver continuing commitment to its ongoing work programme and to capitalise potentially on attractive asset opportunities which may become available in the period ahead," said Stewart.
Faroe shares were up 3.9% to 80.00 pence per share on Tuesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
Faroe Petroleum Plc