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Faroe Petroleum issues statement regarding Offer by DNO

12 Dec 2018

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The Board of Faroe Petroleum has issued a statement saying it notes the announcement made by DNO today of the posting of an offer document containing the full terms and conditions of its unsolicited offer for the entire issued and to be issued share capital of Faroe not already owned by DNO at 152p per share in cash, which follows DNO’s announcement on 26 November 2018 pursuant to Rule 2.7 of City Code on Takeovers and Mergers (the “Takeover Code”).

The Board reaffirms its previous statement that the Offer is opportunistic and substantially undervalues Faroe, and encourages all shareholders to take no action. Furthermore, the Board believes that DNO’s offer document contains no substantial new information or arguments to support its Offer.

DNO’s opportunistic Offer seeks to exploit the recent oil price fall to acquire Faroe on the cheap

The Offer price of 152p per share represents a:

  • premium of only 21% to the closing share price prior to the Offer announcement, which is about half the average premium paid on all UK takeovers over the last 10 years;
  • premium of only 1% to the three month volume weighted average share price (VWAP) prior to the Offer announcement;
    • DNO’s presentation of the premium that it is offering with reference to Faroe’s share price on 3 April fails to recognise the significant achievements the Company has delivered since then, including the Iris/Hades and Agar discoveries and the recently announced Equinor asset swap; and
  • discount of c.45% to the average price paid recently for comparable North Sea (in particular, Norwegian Continental Shelf) portfolios measured on a per barrel of 2P reserves basis.

DNO’s unsolicited Offer ignores Faroe management’s proven track record and the Company’s exciting independent future, which has been further enhanced by the recently announced Equinor asset swap

  • Faroe has one of the best exploration track records on the NCS. In the last 12 months alone Faroe has drilled three exploration wells and made two commercial discoveries: Iris/Hades and Agar. Iris/Hades is one of the world’s largest discoveries in the year to date;
  • Faroe is currently in the midst of the largest drilling campaign in its history with two exploration wells ongoing (Brasse East and Cassidy), four committed exploration & appraisal wells (Pabow, Iris/Hades appraisal, Snadd Outer Outer/Cape Vulture and Bergknapp) and a further five wells being planned (Agar appraisal, Alpha, SE Tor/Gomez, Canela and Brasse Extension) in the next 12-15 months; and
  • The recently announced asset swap with Equinor clearly demonstrates the value your Company creates through active portfolio management, as it has previously done with:
    • the acquisition of DONG E&P’s Norwegian assets in 2016, which boosted Faroe’s production base and created a new strategic hub around the Ula platform; and
    • the Petoro asset swap in 2011, in which Faroe swapped its interest in Maria within 18 months of its discovery for a high quality production portfolio.

The Board believes DNO’s criticisms of Faroe are unfounded and purely a tactic to distract from the simple fact that its Offer substantially undervalues the Company

  • DNO has criticised Faroe’s share price performance, financial flexibility, remuneration policy and corporate governance. The Board believes these criticisms are wholly without substance noting that:
    • Faroe’s share price has outperformed the FTSE AIM Oil & Gas Index and Brent price over the three year period up to 3 April 2018 (the day before DNO announced its first acquisition of Faroe shares) and 23 November 2018 (the day before DNO’s Offer announcement);
    • Faroe has a robust balance sheet that has been further strengthened by the recently announced Equinor asset swap which allows the Board to give careful consideration to the optimal mix of reinvestment in the existing portfolio, potential M&A opportunities and returning capital to shareholders following completion of the Equinor transaction;
    • Faroe’s remuneration policy is in line with its UK E&P peers and at this year’s AGM, with the exception of DNO, the Directors Remuneration Report was approved by 99.9% of other shareholders who voted; and
    • Faroe is widely recognised for its strong corporate governance culture in line with UK corporate governance best practice.

John Bentley, Non-Executive Chairman of Faroe, commented:

 'DNO’s highly opportunistic offer is not only at a substantial discount to the value of the Company but also at a substantial discount to comparable portfolio transactions and a substantial discount to the average of all UK takeovers in the last 10 years. Faroe is widely regarded as one of the pre-eminent North Sea E&P companies with a high quality, full cycle and diversified asset base and a management team that, time and again, has demonstrated its ability to create value through exploration and active portfolio management. As such, Faroe would solve DNO’s strategic challenges and Faroe shareholders should receive an appropriate premium which is not currently reflected in DNO’s Offer.' 

The Board of Faroe will write to shareholders with its detailed views on the Offer in due course. In the meantime, Faroe shareholders are strongly urged to take no action in relation to their Faroe shares.

See also: DNO publishes cash offer for Faroe Petroleum

Original article link

Source: Faroe Petroleum

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