Faroe Petroleum Interim Results 26 September 2017 1 Slide 1
Disclaimer These materials do not constitute or form any part of any offer or invitation to sell or issue or purchase or subscribe for any shares in Faroe Petroleum plc (the Company ) nor shall they or any part of them, or the fact of their distribution, form the basis of, or be relied on in connection with, any contract with the Company relating to any securities. Any decision regarding any proposed acquisition of shares in the Company must be made solely on the basis of public information on the Company. These materials are not intended to be distributed or passed on, directly or indirectly, to any other persons. They are available to you solely for your information and may not be reproduced, forwarded to any other person or published, in whole or in part, for any other purpose. No reliance may be placed for any purpose whatsoever on the information contained in these materials or on their completeness. Any reliance thereon could potentially expose you to a significant risk of losing all of the property invested by you or the incurring by you of additional liability. No representation or warranty, express or implied, is given by the Company, its directors or employees, or their professional advisers as to the accuracy, fairness, sufficiency or completeness of the information, opinions or beliefs contained in these materials. Save in the case of fraud, no liability is accepted for any loss, cost or damage suffered or incurred as a result of the reliance on such information, opinions or beliefs. Certain statements and graphs throughout these materials are forward-looking statements and represent the Company s expectations or beliefs concerning, among other things, future operating results and various components thereof, including financial condition, results of operations, plans, objectives and estimates (including resource estimates), the Company s anticipated future cash-flow and expenditure and the Company s future economic performance. These statements, which may contain the words anticipate, believe, intend, estimate, expect and words of similar meaning, reflect the directors beliefs and expectations and involve a number of risks and uncertainties as they relate to events and depend on circumstances that will occur in the future. Forward-looking statements speak only as at the date of these materials and no representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. The Company expressly disclaims any obligation to update or revise any forward-looking statements in these materials, whether as a result of new information or future events. If you are considering buying shares in the Company, you should consult a person authorised by the Financial Conduct Authority who specialises in advising on securities of companies such as Faroe Petroleum plc. Slide 2
Faroe s executive team Graham Stewart Chief Executive Officer Instrumental in founding Faroe Petroleum in 1998 Over 30 years experience in oil and gas technical and commercial affairs Previously finance director and commercial director at Dana Petroleum 1997 to 2002 Experience with Schlumberger, DNV Technica, Petroleum Science & Technology Institute Offshore Engineering degree (Heriot- Watt University) and MBA (University of Edinburgh ) Helge Hammer Chief Operating Officer Joined Faroe Petroleum in 2006 Over 30 years technical & business experience, incl. Shell (Norway, Oman, Australia and Holland) Managing Director of wholly owned Norwegian subsidiary, Faroe Petroleum Norge AS Previously Asset Manager and Deputy Managing Director at Paladin Resources Economics degree (Institut Français du Pétrole, Paris) Petroleum Engineering degree (NTH University of Trondheim) Jonathan Cooper Chief Financial Officer Joined Faroe Petroleum as Chief Financial Officer in 2013 Former Finance Director of Gulf Keystone Petroleum and Sterling Energy and CFO of Lamprell plc Former Director of the Oil and Gas Corporate Finance Team of Dresdner Kleinwort Wasserstein Broad range of experience from mergers and acquisitions, public offerings and financing Chartered accountant by training having qualified with KPMG PhD Mechanical Engineering (University of Leeds) Slide 3
2017 Interim Highlights Activity Operations Exploration programme continues to deliver in Norway Successful Brasse oil and gas appraisal well and DST increases recoverable volumes to 56-92 mmboe (43-80 mmboe previously) Four new APA licences in Norway in January 2017 including an extension to the Brasse discovery Farm out secured on licence offshore Ireland, Faroe retains 20% and full carry on work programme Production at upper end of expectations Average H1 production 14,800 boepd (H1 2016: 18,800 boepd), reduction primarily due to planned shut-in of Njord & Hyme Average opex/boe approximately $26 (2016: $25) Finance Strong balance sheet and cash position Cash and net cash at 30 June 2016 117.6m (31 December 2016: 96.8m) Total H1 capex 55m pre-tax ( 33m post-tax), maintaining FY forecast of 135m pre-tax ( 100m post-tax) Outlook Production guidance for full year 2017 maintained at 13-15,000 boepd, reflecting planned H2 maintenance Exploration programme continues with Iris/Hades well expected end 2017 Gas production on a post tax basis is well hedged for 2H17 (98%) and 2018 (76%) at an average price of 39p/therm and 41p/therm respectively 1 Including acquisition of DONG assets Faroe well capitalised and on track to become a leading E&P player in the North Sea Slide 4
Visible growth route to over 40,000 boepd within 5 years New production from investment in projects - locking in low costs >40,000 Development Status Committed To be sanctioned Contingent on appraisal Fenja (Pil) Fogelberg Brasse Njord Future & Bauge Gross Margin Current fields Tambar Brage Oda $/boe Unit Opex Note: this chart is illustrative in nature from existing, defined projects at current equity WI% and should not be construed as forward guidance Slide 5
Committed projects on track Attractive projects with excellent upside Brage infill drilling promising results First producer in three well programme brought on stream at excellent initial oil rate: 8,000 bpd (gross). Long term impact will depend on stabilized oil rate, to be established. Promising results from 4D seismic analysis: second well (water injector) has encountered a significant undrained oil column. Tambar infill drilling and gas lift project Project is underway to increase Tambar production 2 new wells to be drilled and gas lift to be retrofitted in 3 existing wells Drilling rig Maersk Interceptor expected on Tambar in October Oda subsea development project Progressing on schedule. Drilling to commence in Q2 2018 First oil expected in mid-2019 Njord Future and Bauge development project New pontoons installed and dry dock phase completed on time Tow-out and oil production start-up planned for 2020 Slide 6
Asset summary
Core hub areas Attractive projects with excellent upside Focus on value growth to realise synergies Greater NJORD hub area Njord Future Project (including new Bauge) on track for 2020 Fenja (Pil & Bue) FEED underway FDP expected late 2017/18 Further exploration upside BRAGE hub area Brasse 2017 appraisal campaign Brasse development feasibility studies underway Drilling of Brage in-fill wells ULA hub area Tambar gas lift and infill wells projects underway Further upside to exploit infill, Triassic Ula, exploration Slide 8
Brage hub area: BRASSE Robust, simple subsea development project with excellent address Brasse: (Faroe 50% and operator) PL740 Brasse oil and gas discovery July 2016 similar to Brage Preliminary estimates of 56-92 mmboe recoverable volumes: Recoverable oil: 46-76 mmbbl; recoverable gas: 59-97 bcf 2 potential hosts - 13 km to Brage & Oseberg Central platforms Brasse 2017 appraisal campaign successful: Already proves southern extent of discovery, and commerciality of field Very good reservoir properties and in communication with discovery DST flowed at a maximum stable rate of 6,187 bopd Successful side track confirmed high quality sands Concept Selection planned for 2018; first oil anticipated 2020/21 Oseberg platforms Subsea development schematic Host Brasse Slide 9
Brage hub area: BRASSE High value project with excellent upside Brasse: (Faroe 50% and operator) Slide 10
Brage hub area: BRAGE Incremental project to deliver 2018 production growth Brage: (Faroe 14.3%) Overview Large STOOIP (1,000 mmbbls) Net 2P Reserves at 5.0 mmboe at 1 Jan 2017 Wintershall 35.2% and operator Opex reductions through improvement projects MAP Brage infill wells underway Three new targets sanctioned First well completed excellent initial production Portfolio of new infill targets 4D seismic to improve infills Brage platform Slide 11
Ula hub area: ULA Significant upside from further infill drilling and WAG reinjection scheme Ula: (Faroe 20%) Overview AkerBP 55% and operator Net 2P Reserves at 6.5 mmboe at 1 January 2017 Field development Net 2P Reserves at 6.5 mmboe at 1 Jan 2017 (Ula only) Host facility for the Blane*, Oselvar/Oda and Tambar fields Oil exported to Teesside, gas used for IOR Renewed exploitation drive underway led by AkerBP Upside potential Additional gas from Tambar & Oda 4D seismic project being planned Several infill targets maturing Triassic reservoir underexploited Significant reduction in unit opex planned Ula platforms Ula Hub (20%) Oselvar (55%) Oda (15%) Tambar (45%) Blane* (30.5%) *Acquisition of further 14% interest in Blane announced July 2017 Slide 12
Ula hub area: TAMBAR Gas lift and new infill wells Tambar: (Faroe 45%) Overview AkerBP 55% and operator Net 2P Reserves 9.8 mmboe at 1 January 2017 Installing artificial lift Retrofit gas lift system (straddle) in existing wells Conversion of existing pipeline to gas lift service Potential for significant production increase Gas lift Installation to increase reserves Prolonged Tambar field life will provide additional gas for WAG on Ula Tambar 10 UGIP pipeline 8 Production Umbilical w/ power & control Ula P-D-Q K5 K3 K1 K6 16 km Slide 13
Ula hub area: ODA 1 Simple, high-return oil development via Ula hub infrastructure Oda: (Faroe 15%) High value project Centrica 40% and operator, AkerBP 15% and Suncor 30% 66m water depth - excellent quality reservoir, light oil Subsea tie-back to the Ula platform via Oselvar infrastructure Two production wells and one water injection well FDP approved May 2017 - All major contracts awarded - Gross capex expected at c.$645m Plateau production of c.35,000 boepd gross (c.5,250 boepd net) Net 2P Reserves at 6.9 mmboe at 1 January 2017 First oil expected in 2019 Extracting synergies in the Ula hub Faroe to capture - Oda compensation payment to Oselvar (Faroe 55%) - Oda tariff payment to Ula (Faroe 20% vs 15% of tariff) Ula Hub (20%) Subsea tieback of Oda to Ula platform Oda (15%) Tambar (45%) Oselvar (55%) 1 Former field name Butch *Acquisition of further 14% interest in Blane announced July 2017 Blane* (30.5%) Slide 14
Njord hub area: NJORD + HYME + BAUGE + FENJA Attractive projects with excellent upside Njord: (Faroe 7.5%) + Fenja (Pil & Bue): (Faroe 25%) Njord Future Project FDP approved June 2017 Dry dock phase for hull reinforcements and modifications completed Bauge to be developed as a subsea tie-back to Njord Planned to come back on stream in 2020 Fenja - Njord chosen as host facility Fenja (previously Pil & Bue) - subsea tie-back development to Njord Three horizontal producers supported by water and gas injectors Front End Engineering Design (FEED) ongoing FDP planned for end 2017/ early 2018 Bauge (7.5%) Njord Hub (7.5%) Hyme (7.5%) Njord (Faroe 7.5%) Fenja (Pil & Bue) (Faroe 25%) Fenja (Pil & Bue) (25%) Njord A facility at the Aker Stord yard Slide 15
Njord hub area: SIGNIFICANT RESOURCE BASE Material 2P reserves, future production and significant prospect inventory Faroe has material position in prolific Halten Terrace area Gross reserves on Faroe licences estimated to be more than 340 mmboe (gross) via Njord hub Net 2P reserves at 42.3 mmboe Significant exploration position Faroe discoveries include Maria, Fogelberg, Bauge (Snilehorn), Fenja (Pil & Bue), NF2 and NF3 Highly prospective area with good success rate Faroe established and well regarded player Slide 16
Exploration drive benefiting from much lower costs Tax-efficient exploration offers material value uplift Prospect Equity 2017 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Brasse appraisal * 50% Goanna * 30% Iris / Aerosmith ** 20% Fogelberg Appraisal 1 ** 33% Brasse Extension *** 50% SE Tor *** 85% Rungne *** 30% Oshun *** 20% * drilled/ongoing ** committed *** possible More than 1.0 bn boe unrisked prospective resource in portfolio 2 Strong in-house team with excellent track record High success rate - focus on monetisation Sustainable through annual licence round participation 1) Increase in Fogelberg interest from 25% to 33% subject to approvals/completion 2) Company estimate Exploration 2016: an award-winning year for Faroe Slide 17
Finances
H1 2017 Results Summary Increased profitability and cash flow from operations Financial Summary ( M) H1 2017 H1 2016 Explanation Revenue (IFRS) 80.1 23.1 An increase of 64% in accounting production (due to acquisition of DONG assets) and recovery in commodity prices led to higher revenue in the period Underlift 15.6 20.2 Due to timing of liftings Adjusted revenue 95.8 43.3 See above Operating costs (excl. underlift) (69.5) (30.7) Other Income 18.1 - Realised hedging (losses) / gains (0.3) 4.1 EBITDAX 44.1 16.7 Impairment (3.0) - DDA (20.5) (13.7) Administrative expenses (2.0) (4.2) Increase in operating costs is largely related to increased production. Opex/bbl relatively constant at $26/bbl (for producing fields and excl. accrued future Ula upgrade costs) Compensation recognised by Faroe as Oselvar partner from Oda. Future compensation accrued 7.6M and net compensation receipt in 1H 10.4M Realised hedging gains of 0.8M were offset by premiums of 1.1M in H1 2017. Higher commodity prices in H1 2017 compared to H1 2016 led to lower gains on hedges Increase in EBITDAX is mainly attributable to increased volumes and recovery of commodity prices Impairment charge recognised on Schooner and Ketch due to uncertainties on downstream infrastructure, which has led to an acceleration of COP. Higher absolute DDA mainly due to higher production volumes. DDA/bbl has reduced to $10/bbl due to prior year impairments (1H 16: $11/bbl) Reduction in administrative expenses due to higher timewriting recoveries as a result of greater activity levels on operated assets Exploration and evaluation expenses (22.8) (25.9) Predominantly write-off of Boné well of 20.4M Finance costs (6.1) (1.9) The increase of 4.2M is largely non-cash related and is driven by the significant increase in the decommissioning provision following completion of DONG acquisition in H2 2016 Finance income 0.2 0.3 No material movement Unrealised hedging gains / (losses) 4.0 (7.2) As a result of the reduction in commodity prices as reflected forward curve, commodity hedges are mainly in the money at 30 Jun 17 Loss before tax (6.1) (35.9) Mainly driven by improved EBITDAX offset by movements on DDA Tax credit 3.2 22.9 Profit/(loss) for the period (2.9) (13.0) Losses narrowed Decrease due to lower CT credit as a result of higher profits from Norwegian production and a deferred tax charge arising from significant capex in Norway on D&P assets Slide 19
Financial summary highlights and outlook Strong balance sheet, undrawn RBL, good hedging, production cash flow o 117.5m at 30 Jun 17 (unaudited) o 78% tax rebate for Norwegian E&A o Over 90% cost recovery for developments in Norway Healthy cash balance Tax efficient o Maintain upside via Puts o Hedges 2017 o Gas: 87% @ 40p/therm o Oil: 34% @ $54 bbl % of production on a Post tax basis Hedging Strong balance sheet Financial flexibility Financial discipline Significant debt headroom o $250m 7 year RBL ($100m accordion) o zero of RBL Facility drawn o NOK1bn Exploration Financing Facility Strong cash flow Fully funded program o 44m (H1 2017) EBITDAX o E&A 45m ( 11m after tax) o CAPEX 90m Slide 20
Summary Diversified portfolio, high upside, funded programme - material value growth Solid and proven pan-north Sea model with world class team delivering sustainable value growth Greatest exposure to Norway of all London quoted E&Ps Strong exploration programme continues - underpinned by production and Norwegian tax rebate Material Brasse discovery on track for near-term development Asset base delivering solid value 2P reserves of 81.3mmboe plus 2C resources of 90.9mmboe, one of largest on AIM Portfolio has clear growth path to deliver over 40,000 boepd organically Robust balance sheet (with no debt) and operationally strong at low commodity prices Robust balance sheet, undrawn debt facility, prudent financial management Tax efficient cash flow from production Profitable at low commodity prices - low unit opex (mid-20s $/boe), set to fall further as new wells & fields brought on stream Material forward programme locks in significantly lower costs and Norwegian State tax incentives Active programme ahead with significant investment focused on adding and growing reserves, production and cash flow 78% of E&A costs in Norway recovered from State; tax credits shield 90% of Norwegian investments Investing at bottom of cycle organic and M&A growth Strong balance sheet ensures all committed programme investments are fully funded - capturing low costs Actively pursuing near term growth in value and scale through deals - acquisitions, swaps and divestments Slide 21
Appendices
Share price Slide 23
Faroe Petroleum s shares Number of shares in issue Average traded volume per day in H1 2017 366.5m 1.6m Quoted on AIM, London Shares in free float approx. 84%* *Source: RDIR Blue chip shareholder base Slide 24