Is Faroe Petroleum the best buy in the North Sea?

PUBLISHED: Sep 22 2015 @ 09:51 | Comments (0) | More info about Long Over Short

Faroe Petroleum (LSE:FPM) continues to be the best play in the North Sea and interim results today enforce that view.

As the commodities rout continues many Oil & Gas companies continue to make all-time lows. One major area of focus for UK investors has been the North Sea and whether it’s game over for the region. For many companies there are major problems: Ithaca Energy (LSE:IAE) and Premier Oil (LSE:PMO) are two that continue to fall. However it’s not all doom and gloom with regards to North Sea oil. Faroe Petroleum the full-cycle North Sea focused player is very different. Its share price has only fallen 40% in the last year compared with 78% and 80% for Ithaca and Premier respectively. This is due to the robust balance sheet being underpinned by low cost production.

This is a snapshot from interim results released today (22^nd Sept):

Revenue: £55.3m (H1 2014: £53.5M)

Operating Profit: £5.6m (H1 2014: £15.5M loss)

Operating cost per boe: $22 (2014: $33)

Net cash of: £81.7m (31^st Dec 14 £69.6)

What is key here is the net cash balance of £81.7m. This cash along with Faroe’s reserve based lending facility of £145m (£23m drawn) makes up a hefty war chest to acquire assets from distressed sellers and cheap prices. Faroe could also develop some of their recent discoveries in the next year and take advantage of lower industry costs making development cheaper and driving a better rate of return. Production guidance of 9,000-10,000 boepd for 2015 shows the company is operating well and will continue to make a profit with operating cost per boe at only $22. Faroe are also undertaking a large exploration campaign that will also add value should any wells be successful.

Clearly Faroe Petroleum is in a very good position to grow through internal development or acquisitions. At 64p it looks like a good investment on a medium timescale and should provide a good return even if the oil price stays under $60 for some time.

Check on longovershort.com for the full review of Faroe Petroleum as well as other such as 88 Energy (LSE:88E) and Falklands Oil & Gas (LSE:FOGL)

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