THE chief executive of Faroe Petroleum, Graham Stewart, has said there is no sign the crude price will increase any time soon but highlighted the opportunities the downturn in the oil and gas sector has created for some firms.
In the Aberdeen-based company’s interim results, Mr Stewart gave a gloomy assessment of the prospects for the North Sea industry saying challenging market conditions look set to continue for some time.
However, he added: “Faroe is well positioned to weather the continuing low commodity prices and sector malaise, and is focusing on a number of growth opportunities.”
Coming from a man who runs a big North Sea business, Mr Stewart’s comments highlight the contrasting fortunes of firms in the area since the downturn started last year.
The fall in the Brent crude price from $115 per barrel in June last year to around $48/bbl yesterday has taken a heavy toll on the sector.
North Sea industry players have shed around 5,500 jobs in recent months.
However, Mr Stewart made clear he believes Faroe is in a position to capitalise on helpful consequences of the slump.
With around £250m cash and undrawn borrowing facilities, the firm is probably in a stronger position than those that are trying to service hefty debts. Faroe has amassed a portfolio of producing assets, which generate plenty of cash in spite of the oil price fall.
It has the resources to take advantage of the sharp drop in the cost of services such as drilling that has occurred as firms have tried to retain their share of a shrinking market. The price of North Sea oil and gas fields has also fallen.
“Despite the low commodity price climate, Faroe aims to continue with a material exploration programme benefitting from significantly lower rig rates,” said Mr Stewart.
He added: “We also plan to continue building our production portfolio through a combination of acquisitions and asset swaps, drawing upon existing resources.”
Earlier this month Faroe underlined is enthusiasm for UK North Sea producing assets by acquiring stakes in two fields from Australia’s Roc Oil for up to $20 million (£13m).
Mr Stewart said plans to develop the Butch, Njord and Pil finds off Norway are all progressing as planned with investment decisions scheduled for 2016. “All will benefit from significantly reduced industry costs,” he noted.
Sector watchers may welcome the comments as another sign some seasoned North Sea veterans believe the time is ripe to invest in the area.
Tom Cross, who grew Dana Petroleum into a £1.8 billion operation with a big North Sea portfolio, has made clear the Parkmead Group he runs wants to buy more assets in the area.
However, such optimistic statements contrast with the gloomy tone of much commentary coming from experts.
The Wood Mackenzie consultancy has warned nearly half the oil and gas fields in the North Sea could be shut down over the next five years even if the oil price rises to $85/bbl.
Faroe Petroleum said it made good progress in the six months to 30 June, when it achieved £365,000 pre-tax profit.
It lost £20.1m in the first half last year. The company wrote off around £17m exploration costs in the first six months last year but only £9m in the first half this time.
It made two finds that were smaller than hoped for off Norway, where it also drilled two dry wells.
Mr Stewart noted explorers benefit from generous tax breaks in Norway. Faroe expects to be able to drill at least three wells off Norway next year for less than £10m in total.
Total revenue increased to £55.3m in the first half of this year from £53.5m last time. Faroe benefited from the restarting of production from the Njord and Hyme fields off Norway in July last year.
Total production increased to an average 10,971 barrels oil equivalent per day (boepd) from 7,592 boepd last time.
The company got an average $53.7 per barrel oil equivalent for its output, down from $71.4/boe last time.
Mr Stewart noted the average operating cost per barrel fell to $22 in the first half, compared to $33 for the whole of 2014 reflecting cost cuts and good production performance.
Analysts at Numis Securities wrote: “Overall a solid set of results, with encouraging steps on cost cutting.”
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