Faroe Petroleum, the independent oil and gas company focusing principally on exploration, appraisal and production opportunities in the Atlantic margin, the North Sea and Norway, is pleased to announce that it has completed the previously announced acquisition of a 53.1% operated interest in the Schooner Field and a 60% operated interest in the Ketch Field in the UK Southern North Sea gas basin (the “Interests”) from Tullow Oil SK Limited (“Tullow Oil”).

Remaining Proved and Probable Reserves, as evaluated by the Company, as at 1 January 2014 were 5.9 million barrels of oil equivalent (“mmboe”) net to Faroe Petroleum. Average economic production(1) for the first six months net to the Company was approximately 3,700 boepd.

A description of the Interests was announced by the Company on 30 April 2014 and a summary is set out below.

Graham Stewart, Chief Executive of Faroe Petroleum, commented:
“We are very pleased to announce the completion of this acquisition, which broadens our production base further and both boosts and diversifies our oil and gas production portfolio.

“Schooner and Ketch are good quality producing fields, well known to the Company and which offer upside potential in the form of increasing reserves, production and field life. The transaction is tax efficient for us, providing shelter for both past and future tax losses in the UK and is in line with our strategy to grow our production portfolio to continue the efficient funding of Faroe’s ongoing exploration and appraisal programme.”

(1) Faroe receives the economic benefit of production from the effective date of 1 January 2014 by way of an adjustment to the consideration, but can only account for production from the date of completion

John Wood, UK Asset Manager of the Company with over fifteen years’ experience of the oil and gas industry and who holds an M.Sc in Petroleum Engineering from Imperial College, has read and approved the technical disclosure in this regulatory announcement.

Summary

The Ketch and Schooner Fields are located in Block 44/28b, and Blocks 44/26a and 43/30a in the UK sector of the Southern North Sea, 150 kilometres from the Theddlethorpe Gas Terminal on the Lincolnshire coast. The Ketch Field was discovered in 1984 and the Schooner Field in 1987, with first gas from Schooner in 1996 and Ketch in 1999. Both fields, developed by then-operator Shell, are multi-well developments with ‘normally unmanned’ platforms, currently managed by a third party Duty Holder. Gas is exported via the Caister Murdoch facilities to the Conoco-operated Theddlethorpe Gas Terminal where it is sold into the National Grid.

At 1 January 2014 the remaining Proven and Probable Reserves for the Interests were estimated by the Company to be 34 Bcf of gas and 0.3 mmbbl of condensate, equating to 5.9 mmboe in total, net to Faroe.

The initial consideration payable for the acquisition of the Interests is £35 million prior to adjustment for Net Income Receivable by the Company from the sale of hydrocarbons from the field from the effective date of 1 January 2014 to completion. Further consideration of up to £10 million will be paid to Tullow if up to 10 Bcf gross (6 Bcf net to Faroe) of incremental gas is produced from a specific reservoir compartment on the Schooner field recently developed by the 2013 SA11 well. In addition, Faroe has identified several potential areas for investment in these assets, in order to further enhance reserves and value and to extend field life, certain of which are the subject of contingent royalties. In the event that the Schooner joint venture pursues the exploration and subsequent development of the Schooner C and Schooner Far NW targets, royalty payments will become due to Tullow Oil as to 50 pence/mscf on the first 250 Bcf gross production from the Schooner C area and 50 pence/mscf on the first 100 Bcf of gross production from Schooner Far NW area, up to a maximum potential £92.2 million. For such royalty payments to be paid in full, approximately 35 mmboe net to Faroe would have to be produced from the Schooner C and Schooner Far NW areas, compared to the current Company estimate of 5.9 mmboe of net Proven and Probable reserves.

The estimated average 2014 production from the Interests is expected to be between 3,000 and 4,000 boepd net to Faroe. Faroe receives the economic benefit of production from the effective date of 1 January 2014, but can only account for production from the date of completion.

Reserves Assessment

To assess the reserves, the Company has used the definitions and guidelines set out in the 2007 Petroleum Resources Management System prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers (SPE) and reviewed and jointly sponsored by the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE).

About Faroe Petroleum

Faroe Petroleum is quoted on the AIM Market of London Stock Exchange plc with offices in Aberdeen, Stavanger, London and Torshavn. The Company is funded from cash reserves and cash flow, and has access to a $250m borrowing base facility, with a fully funded drilling programme through 2014 and 2015. Faroe has highly experienced technical teams who are leaders in the areas of seismic and geological interpretation, reservoir engineering and field development, focused on creating exceptional value for its shareholders.