DNO’s Offer substantially undervalues Faroe by 48 per cent

Posted On January 2nd, 2019 - 1:12 pm | by Oil and gas press

Independent expert’s asset valuation highlights the inadequacy of DNO’s Offer

The Board of Faroe (the “Board”, “we”) announces that it is today publishing an independent current valuation report on Faroe’s assets which implies a valuation for Faroe in the range of 186p to 225p per share1. This independent valuation report clearly highlights the inadequacy of DNO’s offer of 152p per share in cash (the “Offer”).

Summary
Gaffney, Cline & Associates (“GCA”), a leading independent oil and gas industry expert, concludes that the value of Faroe’s oil and gas assets reflecting current market oil pricing is in the range of US$879m – US$1,076m

This implies a valuation for Faroe in the range of 186p to 225p per share1 on a fully diluted basis adjusting for net cash as at 30 September 2018, representing a 22% – 48% premium to DNO’s Offer price

GCA’s valuation report has been prepared as at 30 September 2018 but updated to reflect the current oil price environment and latest drilling results including for Brasse, which have been announced today

GCA estimates Faroe’s 2P Reserves as at 30 September 2018 to be c.102mmboe2

GCA’s valuation further reinforces the Board’s view that DNO’s Offer is opportunistic and substantially undervalues Faroe
Independent expert’s asset valuation

GCA has prepared an independent valuation of Faroe’s assets as at an effective date of 30 September 2018, in accordance with Rule 29 of the UK Takeover Code.

GCA has updated its analysis to reflect the current oil price environment and latest drilling results including for Brasse, which have been announced today. GCA concludes that “the value of Faroe’s oil and gas assets more reflective of current (late December 2018) market oil pricing is in the range of US$879 million – US$1,076 million”

In accordance with Rule 26.3 of the UK Takeover Code, a full copy of GCA’s independent valuation report has been published on our website.

GCA’s valuation does not account for:

The Equinor asset swap on the basis that this has not completed yet and consequently does not reflect the tax synergies we expect to realise through the accelerated utilisation of our Norwegian tax loss position from this transaction

Faroe’s scarcity value in the current tight upstream M&A market, especially on the Norwegian Continental Shelf (as described by Wood Mackenzie in their “Norway’s M&A Market” October 2018 report)

Faroe’s going concern value of its management’s proven track record, in particular in exploration (as validated by Wittemann E&P Consulting in their “NCS exploration performance analysis” 1 October 2018 report)

The strategic benefits that Faroe would bring to DNO whose business stands in stark contrast to Faroe’s high quality, full cycle and diversified North Sea business

The Board believes that GCA’s independent valuation further reinforces its view that the Offer is opportunistic and substantially undervalues Faroe.

John Bentley, Non-Executive Chairman of Faroe, commented:

“GCA’s independent valuation clearly supports our view that DNO’s Offer substantially undervalues Faroe. Its valuation of Faroe’s oil and gas assets implies a value per share for Faroe in the range of 186p to 225p per share representing a 22%-48% premium respectively to DNO’s Offer price.”

Source / More : Faroe

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