SHARES in Aberdeen-based Faroe Petroleum last night closed well above the level of a hostile takeover bid launched yesterday by Norwegian player DNO, signalling the City does not expect the offer to succeed on current terms.

Relations between the Aberdeen oil and gas independent and sector stablemate DNO, which has a stake of more than 28 per cent in Faroe, have been far from harmonious, and the hostile bid yesterday sparked a fresh war of words between the pair.

The Norwegian company’s executive chairman, Bijan Mossavar-Rahmani, declared Faroe’s assets would be “better placed in the bosom of DNO”.

The DNO bid, which values Faroe at around £607.9 million, comes after a sharp fall in oil prices in recent weeks.

John Bentley, non-executive chairman of Faroe, declared the view of his company’s board that DNO’s unsolicited 152p-a-share all-cash offer was “opportunistic” and “inadequate”.

Shares in North Sea-focused Faroe leapt by 33.8p – nearly 27 per cent – to 159.6p in the wake of news of the hostile bid. This movement chimed with views expressed by City analysts that, while DNO’s large stake in Faroe put it in a strong position, the current level of the hostile bid would be unlikely to win the day.

Shares in Faroe, which has been active in exploration on the Norwegian Continental Shelf but also has significant interests in the UK North Sea, traded above 170p at the start of October but have fallen with the tumble in Brent crude prices in recent weeks to around $60 a barrel.

In a statement released just after the London stock market’s 4.30pm close, Mr Bentley said: “DNO’s offer substantially undervalues Faroe on every applicable metric. The board is determined to defend our shareholders’ rights to receive an appropriate premium for a fully funded business which is actively progressing the delivery of its highly attractive growth prospects and is the only platform available which solves DNO’s strategic challenges.”

He added: “We believe that Faroe is worth substantially more than 152p per share and we urge shareholders to reject DNO’s opportunistic, unsolicited and inadequate offer.”

Faroe, which is run by chief executive Graham Stewart, had earlier emphasised that “DNO did not engage with Faroe before making the announcement of its unilateral offer”.

Mr Mossavar-Rahmani said: “We firmly believe that Faroe’s assets, the substantial part of which are Norwegian, are better placed in the bosom of DNO, Norway’s oldest independent oil and gas company, currently operating gross production of 125,000 barrels per day, which compares with the 7,500 barrels of oil equivalent a day of gross production operated by Faroe. DNO’s proven and probable reserves were nearly four times those of Faroe’s as reported at 31 December 2017.”

Declaring that DNO attached “great importance to retaining the skills, knowledge and expertise of Faroe’s operational management and employees”, he added that DNO intended to retain the Aberdeen company’s head office and each of the other offices.

Faroe declared the bid of 152p a share “represents a premium of just 1% to Faroe’s three-month VWAP (volume weighted average price) and only 21% to Faroe’s closing share price on 23 November 2018”.

It added that this was “substantially below the average premium on all UK takeovers over the last 10 years of 43%”. And it declared it was also “substantially below the average premium on all UK takeovers in the E&P (exploration and production) space over the last 10 years of 40%”.

Faroe also calculated that the DNO offer was equivalent to around $6.80 per barrel of proven and probable reserves. It added that this was substantially below the average price paid recently for comparable North Sea, in particular Norwegian Continental Shelf, portfolios of around $12.10 per barrel of proven and probable reserves.

Mr Mossavar-Rahmani noted the offer price of 152p per share represented a premium of 44.8% to the closing price of 105p on the day before DNO announced its first acquisition of Faroe shares in April.

He added: “In the period between our first acquisition, triggering significant bid speculation, and this offer, the price of Brent crude has dropped 13% and oil and equity markets have entered a period of great uncertainty.”

Mr Mossavar-Rahmani claimed: “For those shareholders who wish to exit, DNO is therefore offering a considerable premium.

"For those who wish to remain, there is no assurance of Faroe achieving its full value potential in a volatile commodity and financial markets environment as a relatively small scale, financially constrained UK-AIM (Alternative Investment Market) listed company whose share-price performance has remained stubbornly disappointing, with the very notable exception of short-term spikes following the sale of a particular large block of shares by one investor to another, most recently to DNO, and the attendant speculation about an impending takeover premium with each such transaction.”

Faroe said: "The board...continues to believe, that control of the company should not be ceded without an appropriate premium being paid."