SHARES in North Sea-focused Faroe Petroleum have surged seven per cent after the company announced it had made a discovery off Norway following some exploration reverses in recent months.
Aberdeen-based Faroe Petroleum said a well on the Brasse prospect in the Norwegian North Sea had found oil and gas in what is a core area for the company.
Aim market-listed Faroe did not provide an estimate of the size of the find.
Signalling confidence, the company has decided to drill another, sidetrack, well to help gauge the size of the reservoir concerned.
Analysts at the Panmure Gordon brokerage said they understood that the drilling plans were based on the assumption Brasse held up to 30 million barrels oil equivalent.
The depth of the oil and gas column discovered and the decision to drill a sidetrack suggested a discovery toward the top end of the range or above it.
They wrote: “If confirmed as 30mmboe plus, this would count as a good discovery for Faroe after a mixed run of success.”
Led by chief executive Graham Stewart, Faroe Petroleum has described the results of four of the six wells drilled off Norway between April last year and February as disappointing.
It made finds with two of the wells but described one as smaller than predicted.
The results of the Brasse well will increase directors’ confidence in a strategy that has seen Faroe continue with a relatively high level of exploration activity in spite of the crude price plunge. Many firms have been cutting drilling activity to focus on less risky activity.
Norway provides generous tax breaks for exploration. When Faroe started drilling Brasse in May Mr Faroe said the well would only cost it £2 million after tax.
Yesterday he said: “This discovery in one of our core areas, builds on Faroe's already significant position in the Norwegian North Sea via a low cost exploration well.”
Brasse lies 13 kilometres from the producing Brage oil field, which Faroe has a stake in.
The company may be able to link Brasse with nearby production facilities to help reduced the costs involved in bringing it onstream.
It would be much more expensive to bring a discovery onstream in an area where there aren’t any production facilities.
In March Mr Stewart noted the fall in the oil price since 2014 had resulted in a sharp fall in the costs involved in exploration and development work, as services firms fought over a shrinking market.
He said this had made it an economically compelling time to invest in the North Sea.
Mr Stewart has also highlighted the company’s desire to buy assets in the North Sea. Many assets are up for sale in the North Sea at much lower valuations than they could have been expected to command during the boom that ended in 2014.
The Parkmead Group run by oil and gas entrepreneur Tom Cross has also said it is in the market for North Sea acquisitions.
Mr Cross developed the Dana Petroleum business where Mr Stewart used to work, and which was sold to a Korean firm for £1.89n in 2010.
Parkmead Group owns 3.9 million shares in Faroe Petroleum, around two per cent of the total.
Shares in Faroe Petroleum closed up 4.5p at 66p, giving it a market capitalisation of around £175m.
The company has a 50 per cent interest in the Brasse field. The remainder is held by Norway’s Point Resources.
Faroe said production from the Njord and Hyme fields off Norway has been suspended, as expected, pending an upgrade of the relevant production facility.
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