NORTH Sea-focused Faroe Petroleum has highlighted the benefits the crude price rally has generated for firms that operate oil and gas fields amid continued pressure on the supply chain in the area.

Aberdeen-based Faroe said it had made good progress with development work in the first half after capturing material cost savings available as a result of the plunge in oil prices between summer 2014 and early 2016.

Faroe’s chief executive Graham Stewart noted the partial recovery in the oil price in recent months has allowed the company to generate enough extra cash to result in a marked improvement in liquidity.

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Coming from a significant North Sea player, the comment will boost hopes the outlook for investment in the area is improving.

But the update also underlines the scale of the challenge faced by firms that support oil and gas companies in areas such as drilling since the crude price plunge started.

Many companies slashed the prices they charged amid the intense competition for business which developed as firms that operate fields cut spending on new projects.

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While the rise in the oil price since late 2016 has helped producers record a big increase in profitability, Faroe’s update indicated it has yet to provide much relief for services firms.

It came weeks after Mr Stewart noted the company has been pursuing an active exploration programme to take advantage of low rig rates.

But Faroe’s experience will boost hopes the oil and gas sector is embarked on a recovery that will help underpin the viability of those services firms that took the right steps in response to the downturn.

Faroe is set to increase investment in development and exploration activity. The company has also benefited from the increase in interest in the North Sea among other investors, which has accompanied the recent rise in the crude price.

Norway’s DNO has built up a near 29 per cent stake in Faroe since the start of April. It moved back into the UK North Sea last year after focusing its attention on the Middle East for some time.

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The company said it had decided to build a long term strategic shareholding in Faroe and to support its growth focused North Sea strategy. DNO said it did not intend to make an offer for Faroe.

Faroe netted a £26m gain in the first half on the sale of a 17.5% stake in the Fenja field development in Norwegian waters to Suncor.

Mr Stewart noted the company made the the “very significant” Iris Hades discovery off Norway in April.

This helped Faroe increase total contingent resources by around 44 per cent to 113 million barrels oil equivalent.

The company is working on field developments off Norway.

Mr Stewart said it remains one of the most active explorers in the sector with six further wells scheduled for coming months.

Faroe has focused exploration and development spending on Norway, which offers generous tax breaks for drillers. Exploration levels have fallen to record lows in the UK.

But Faroe has shown it still sees opportunities to expand in the UK.

In May Faroe won its first new UK North Sea licence since 2014, covering the Edinburgh prospect, which straddles the UK/Norway border .

It bought a further 14% of the producing Blane field in July last year, for $5.25m, from JX Nippon.

Faroe produced an average 12,402 barrels oil equivalent daily in the first half compared with 14,800 boed last time.Output was impacted by upgrade and maintenance work and disruption to production on a Norwegian field related to issues with the export system.

Faroe narrowed its full year production guidance to 12,000 to 14,000 boed from 12,000 to 15,000 boed.

It achieved around £47m underlying earnings net of one offs against £44m last time.

Brent crude sold for around $72.20 per barrel yesterday, when news that US stockpiles remained higher than expected weighed on prices. That compared with less than $30/bbl early in 2016. Major exporters agreed late in 2016 to curb output to support the market.

Brent fetched $115/bbl in June 2014 after a long boom in prices.